Summit Health Devises New Way to Raise Cash : Financing: Investors who buy the debt securities can exchange them for stock in the company’s nursing-home unit.
Summit Health Ltd., a Burbank-based operator of hospitals, plans to effectively offer its 52% stake in Summit Care Corp. to the public by issuing an unusual type of debt securities.
Summit Health said it plans to sell $50 million of 10-year notes in a public offering that, under certain terms, can be swapped for common shares of Summit Care that are now held by Summit Health.
Summit Care, which operates nursing homes and is also based in Burbank, sold 48% of its stock to the public in an initial offering last March. Summit Care currently has about 5 million shares outstanding, of which about 2.6 million are owned by Summit Health.
Summit Care’s stock has performed nicely since going public. The stock was initially sold for $10.50 a share, and it closed Monday at $17 a share on the NASDAQ market.
Investors who purchase Summit Health’s new securities would get interest income on the notes while effectively betting that Summit Care’s stock price will rise further. For Summit Health, the novel notes enable the company to get $50 million up front and avoid having to negotiate the sale of its Summit Care stake.
Corporations routinely sell debt securities that are convertible into their own common stock, but only a handful of companies have sold exchangeable debt similar to Summit Health’s. One recent example was Pennzoil Co., which earlier this month sold $402.5 million of debentures that are exchangeable into Chevron Corp. common stock that is owned by Pennzoil.
About $25 million of the proceeds from Summit Health’s offering will be used to repay the company’s bank debt, while the balance will be used for general corporate needs, Summit Health said.
Separately, both companies reported sharply higher earnings for their fiscal second quarters ended Dec. 31.
Summit Health said its second-quarter profit rose 44% from a year earlier, to $5.02 million from $3.49 million, and its revenue climbed 8%, to $129.9 million from $120.7 million.
For the first half of its fiscal year, Summit Health’s profit jumped 49%, to $8.84 million from $5.95 million, and its six-month revenue was also up 8%, to $251.8 million from $233.4 million.
Meanwhile, Summit Care said its second-quarter earnings soared 92%, to $1.45 million from $754,000 a year earlier, while its revenue climbed 14%, to $20.8 million from $18.3 million. Summit Care’s earnings for the first half of its fiscal year rose 65%, to $2.44 million from $1.48 million, and its six-month revenue also rose 14%, to $40.8 million from $35.8 million.
