The most widely read articles on this blog are the Healthscope Notes: HLNG and HLNGA. I think the reason for this is straightforward. There has been a very big appetite for income and therefore stocks paying large yields have been Googled.
Based on the current prices, here are the running yields and yields to maturity for both securities:
Here is a snapshot of the financial results:
Other expenses include $120 in write-downs against the pathology business. So, the performance of the company has certainly improved however the sheer amount of leverage is still eye-popping: add back the $120m in write-downs to adjusted EBIT gives $236.1m - $165.6m + $120m = $190.5m. The interest bill is $185.2m.
I disclosed I was selling out of HLNG and not participating in the new HLNGA (which were being issued at the time of writing) and made this statement in response to one of the comments: I am probably being too conservative in my view of the debt levels of Healthscope given the quality of the underlying business.
I am probably being too conservative. However my logic is the leverage involved in order to get a maximum yield to maturity (on current prices) of 8.1% to 8.9% p.a. is too much for me, or at least to get too excited about digging more. But that's me and what I am comfortable investing and spending time understanding. You may disagree, and could well be right.
Kristian
Disclosure: no position in any of the above names
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