New Issue: Invacare Corp. (IVC) Convertible Senior Notes due 2021
Introduction
Invacare last visited the convertible market in 2007. In that year, the company raised $135 million via the issuance of 4.125% convertible senior subordinated bonds due 2027. Only $13.5 million of that issue remains outstanding, the vast majority having been retired through a combination of non-core asset dispositions and other actions. In this latest transaction, the company is bringing a $130 million convertible senior note issue. IVC is a global leader in the manufacture and distribution of durable medical equipment for non-acute care selling to home medical equipment distributors, rehabilitation facilities, and long-term care providers in over 100 countries worldwide. The deal is taking the form of a "happy meal", with a significant percentage of the buyers apparently shorting stock to the company and underwriters.
More on the Bond …
Based on a price-talk midpoint believed to be 4.75% up 30% on a five-year bullet, our initial HOCS slash line measures 55 Overall / 62 Growth / 41 Safety, a fairly poor score for a new deal. The overall and growth scores reflect the company's declining revenues and operating losses. At $16.84, IVC's stock is trading towards the bottom of its 52-week range ($13.99-23.54). Moreover, the company's market capitalization is a skinny $548 million. This fails to meet our "five times deal size" rule of thumb, albeit by a narrow margin. One of several cautionary signals. That helps explain why the optics are so appealing, the bond's saving grace.
More on the Credit …
IVC boasts several positive attributes. A large addressable market, strong channel relationships, a clinically relevant portfolio and the ability to regularly deliver innovative new products. In addition, market diversity from country and health care payor perspectives and a broad base of products and relevant therapies ought to support margins for the foreseeable future. Unfortunately, revenues have been under pressure the past several years. (5-Year CAGR = -4%) What's behind the top line erosion? Reimbursement reductions relating to the roll-out of national competitive bidding have taken a toll. Furthermore, IVC continues to operate under a consent decree with the U.S. FDA centered on the manufacture of (motorized) wheelchairs. A meaningful headwind as well. Finally, currency pressures continue to weigh on revenues as well. A turnaround and cost cutting effort is underway in an effort to combat these pressures. A little revenue growth would go a long way.
Summary Financials | ||
(LTM Pro Forma) | ($MM) | |
Revenues | 1,142 | |
EBITDA | 17 | |
Cash | 60 | |
Total Debt | 197 | |
Market Capitalization | 548 |
Sources: Company filings and Hillside Advisors