Leverage financing activity in the healthcare sector saw strong gains through the first quarter of 2021, as the pandemic response saw the sector attracting steady investor inflows and interest in mergers and acquisitions
As the pandemic continues to weave its way across the world as vaccines are rolled out, the healthcare industry continues to see remarkable leveraged fundraising activity.
In North America, issuance of leveraged health loans and high yield bonds (including biotech, medical and pharmaceutical subsectors) increased 34% year-on-year from $ 35.9 billion in the first quarter of 2020 to US $ 48.1 billion in the first quarter of 2021, making the first quarter of this year the busiest in healthcare emissions since the second quarter of 2018.
In Western and Southern Europe, issuance of leveraged loans and high yield bonds in the healthcare sector in the first quarter of 2021 reached US $ 10.5 billion—A 30% increase over one year and the second most important quarter for health financing since By debt started tracking this data in 2015.
Asia-Pacific (ex-Japan) (APAC) Health care loan and high yield bond issuance declined year-over-year, from $ 3 billion in Q1 2020 to US $ 2.2 billion in the first quarter of 2021 as the market paused to catch its breath after a busy end of 2020, when healthcare loan and bond issuance reached US $ 5.7 billion, the highest quarterly total for the industry in APAC on By debt record, dating back to 2015.
The outlook for APAC activity through 2021 is positive, with favorable government policies and private equity (PE) interest expected to boost loan and bond issuance, according to consultancy firm Bain & Company. .
Refinancing stimulates activity
As has been the case across the market, healthcare borrowers have taken advantage of low-cost loan and bond markets to refinance and revalue debt on more attractive terms and to lengthen debt maturities.
In the United States, refinancing, repricing and riders for the first quarter of 2021 in the healthcare sector totaled 38.3 billion US dollars, representing the bulk of global healthcare emissions. For example, in the first quarter of 2021, Owens & Minor, the Virginia-based healthcare logistics company, completed a US $ 500 million senior unsecured senior unsecured bond refinance due in 2029 and with a coupon of 4.5%, while EyeSouth Partners, the Atlanta-based ophthalmologist group, negotiated a $ 375 million B term loan refinance program, also priced at $ 4.5 %, with a maturity of 2028.
In Western and Southern Europe, refinancing also represented the majority of health issues, amounting to US $ 6.9 billion for the first quarter of 2021. Among the main European healthcare refinances, we can cite Etypharm, the pharmaceutical group backed by the private equity firm PAI, which obtained a term B loan of 555 million euros, together with a 3.5% margin.
In Asia-Pacific, structured loans – tailor-made financial packages for borrowers with complex and specific needs – were the main source of funding for healthcare issuers in the first quarter of 2021, with US $ 1.37 billion structured loan issues representing more than 60% of health issues in the region during this period.
The structured lending activity was mainly carried out by the biotechnology and pharmaceutical companies of APAC which required specific financing products to finance research and development. Refinancing, re-pricing and endorsements issued in the region’s health sector, by comparison, barely totaled US $ 620 million for the first quarter of 2021.
Resilience and growth
The critical importance of well-funded health infrastructure has become increasingly evident throughout the pandemic and has supported rising emissions among health care borrowers. Investors have also been drawn to healthcare assets, as companies in the sector have typically provided a combination of earnings resilience in volatile markets and long-term growth.
The MSCI World Health Care Stock Index, which tracks the performance of healthcare companies in 23 markets, has posted gains of 15.5% in the past 12 months. Healthcare mergers and acquisitions activity has been similarly robust, with firms and private equity firms pursuing healthcare goals.
North America’s pharmaceutical, medical and biotech mergers and acquisitions activity more than tripled from US $ 16.1 billion in Q1 2020 to US $ 55.4 billion in the first quarter of 2021. In Western Europe, during the same period, the value of transactions in these healthcare subsectors more than doubled from $ 11.2 billion in the first quarter of 2020 to US $ 29.6 billion in the first quarter of 2021. APAC’s healthcare sector also posted year-over-year gains in transaction value, growing from US $ 3.9 billion in the first quarter of 2020 to 5.6 billion US dollars in the first quarter of 2021.
Businesses are looking for deals, especially in sub-sectors where COVID-19 has stretched capacity and has emphasized the importance of scale. According to a Bain & Company survey, for example, half of U.S. hospital administrators expect their organizations to complete between one and two acquisitions by 2022.
PE firms, on the other hand, have been attracted by the opportunities to support fast-growing healthcare technology companies that harness the technology to streamline administration and develop new modes of service delivery. Buyout companies have also seen an edge in healthcare logistics, ranging from cold chain logistics to contract research organizations in the pharmaceutical industry.
In Asia, meanwhile, PE interest in health care has increased over the past year. Bain & Company research showed that in 2020 there were more PE healthcare agreements in the APAC region than in North America or Europe for the first time.
When PE healthcare deals entered the market in search of debt, leveraged financial markets were opened up to financing large deals on attractive terms. Following its $ 2.3 billion acquisition by private equity firm Blackstone, for example, the Japanese consumer healthcare division of pharmaceutical group Takeda had interests from five banks to fund the transaction.
Of course, not all health sub-sectors experienced growth during the pandemic. Some, such as elective procedures and dentistry, have been hit hard by the blockages. Healthcare companies already facing financial difficulties have also struggled. Medical Depot, the U.S. medical distribution and supply group, for example, defaulted in April 2021 after starting debt restructuring talks in September 2019.
For most healthcare companies, however, the debt markets remain open for business with lenders keen to gain exposure to favorable underlying industry dynamics and to refinance or finance corporate buyouts. resilient health care.[View source.]