Long DaVita 2013 Sr Unsecured Notes

DaVita Credit Snapshot

DaVita provides dialysis services which has recurring revenues, high
client loyalty and is probably very crisis resistant business even when
Medicare reimbursement and regulatory risk is existent.

DaVita Credit Snapshot

DaVita provides dialysis services which has recurring revenues, high client loyalty and probably is a very crisis resistant business even when Medicare reimbursement and regulatory risk is existent.

- strong market position, # 2 after Fresenius (together 60% of mkt)
- very stable margins
- reasonable leverage
- revenue, EBITDA growing constantly

CFO & FCF are also very stable

- stock strong / market cap to total debt 1.5x
- generally very stable
- Medicare, regulatory and governance risk
- 65 percent of its sales from Medicare patients
- nearly all of its profits are derived from the 35 percent of its patients who have commercial health insurance
- Medicare Improvements for Patients and Providers Act for 2008 was passed by Congress and a new payment system which will be implemented in Jan. 2011
- the company does likely not have the ability to quickly offset the hit to revenues and will have to compensate with cost-control initiatives (f.i. cheaper drugs)
- the initial 2011 bundled rate will be set 2% below the payment rate that providers would have received under the historical fee for service payment methodology.
- beginning in 2012, a new single bundled payment base rate will be adjusted annually for inflation based upon a market basket index, less 1% of such index.
- CEO said this 2% cut will have a USD 60MM sales impact
- collateral coverage relatively weak
- under normal circumstances buy-out risk would be high but the near term probably is tamed
- net debt decreasing only slightly / low short term debt reduction capability

The DVA 2013 senior unsecured notes rank 3rd in the capital structure and trade at reasonable spread in our view to at least build a small position and add to the position on market weakness. We would expect this bonds to be less volatile under normal conditions.

2005 Senior Notes exchange offer

I have no and don't give much on predictions but here are those of UBS as per September 16th, 2009.

Source: UBS