(Bloomberg) -- Brazilian health-care firm Kora Saude Participações SA is negotiating a waiver with local bondholders ahead of an expected breach of the terms of its debt, said people familiar with the matter.
Banco BTG Pactual SA, who acted as an underwriter for the so-called debentures and has lent money to the company previously, is helping on the talks, the people said, asking not to be named because negotiations are private. A more comprehensive debt restructuring is also being considered by Kora, the people said, adding that it’s not the company’s preferred option.
Kora declined to comment, while BTG did not respond to a request for comment.
Kora’s Chief Financial Officer Elias Leal Lima told analysts on a conference call last month that the company made a “major change” to its debt profile last year, conducting liability management exercises.
“We have been talking to banks and debenture holders to readjust liabilities, understanding each part’s needs and the company’s payment capacity,” he said during a call discussing second-quarter earnings. “Creditors have always been partners of the company and we foresee success in this readjustment of liabilities over the next few quarters.”
Kora, owned by private equity firm HIG Capital, has seen operational cash flow generation drop while operating costs climb. Its shares are down 94% from a high in 2021 — part of a widespread downturn for Brazilian health-care companies, which took advantage of historically low rates during the pandemic to fund a ferocious wave of merges and acquisitions but are now struggling with higher rates.
The deterioration has put Kora on track to breach a covenant on its local bonds, the people said. It’s unlikely it will be able to raise cash using receivables as it usually did in past years, one of the people added.
In June, its total gross debt was 2.37 billion reais ($433 million), according to the company’s latest earnings report. The amount includes two local bonds, one for 400 million reais issued by the company itself and another for 715 million reais, sold by its unit Hospital Anchieta SA.
Contracts from both the company’s local notes require it to keep the ratio of net debt to Ebitda below or at 4.0 times in 2024, and 3.5 times from 2025 onwards. As of June, the company’s debt ratio stood at around 3.6 times, according to calculations based on filings.
Holders of the local debt may demand the early maturity of notes through a general assembly in case the company breaches the covenants, though the process is not automatically triggered, according to company documents that state covenants are evaluated annually or as needed. On December 31 2023 and on June 30 2024, “there were no indications that the companies would not be capable of fully complying with the established conditions,” the document reads.
Kora is one of the largest private hospital groups in Brazil and the leading private hospital in the state of Espirito Santo, where it is based. HIG is Kora’s controlling shareholder, with a slice of about 68%, according to data from the securities regulator. Local media has reported the private equity firm is trying to sell its stake.
©2024 Bloomberg L.P.
