NEW YORK, Aug 11 (Reuters) - US medical helicopter operator Air Medical Group Holdings will take on US$2.185bn of additional debt to complete its US$2.4bn purchase of ambulance services provider American Medical Response (AMR) from Envision Healthcare Corp, according to three sources familiar with the matter.
The financing will come in the form of a US$1.455bn incremental term loan B and a US$730m unsecured term loan that will be added to the roughly US$2.3bn of debt outstanding at Air Medical, a KKR portfolio company, the sources said.
Though common in investment grade finance, an unsecured term loan is atypical in the US$928bn leveraged loan market, which draws investors seeking claims on companies’ assets.
A lineup of banks including Morgan Stanley, Goldman Sachs, Jefferies, Bank of America Merrill Lynch, Credit Suisse, Citigroup and Nomura is providing the secured debt commitments, while Canadian pension manager PSP Investments and Ares Capital Management are providing the unsecured debt commitments, according to an August 10 8-K filing with the U.S. Securities and Exchange Commission.
Sponsor KKR, joined by Koch Industries, will contribute US$300m-US$400m of preferred equity to support the transaction, one of the sources said.
KKR, Credit Suisse, Jefferies and Koch declined to comment. Morgan Stanley, Goldman Sachs, BofA Merrill, Citi, Nomura, PSP and Ares did not respond to requests for comment.
KKR acquired Air Medical in 2015 for around US$2bn, Reuters has reported. The deal was backed by a US$1.01bn term loan and a US$370 unsecured bond, according to Thomson Reuters LPC data. The new unsecured loan will have the same recovery priority as the bond.
The merger with AMR will enable Air Medical to cut down its costs for shorter trips by replacing helicopter flights with ambulances, Reuters reported.
“The deal makes a lot of strategic sense, combines Air Medical’s expertise with helicopter transportation with AMR’s leading ambulatory business,” a leveraged finance banker said. “Leverage and valuation are full but there should be meaningful synergies in cross-selling air and ground transport to municipalities and other customers.”
The combined company’s debt-to-Ebitda will be roughly six and a half times, two of the sources said.
Following its buyout, Air Medical acquired fellow air ambulance companies CALSTAR in 2016 and Air Medical Resource Group earlier this year. Both purchases were financed with add-on term loans.
The medical transportation sector has experienced additional activity recently, with buyout firm American Securities’ US$2.5bn acquisition of Air Methods in April.
Air Medical is currently rated B3 by Moody’s and B by Standard & Poor’s. (Reporting by Andrew Berlin; Editing By Michelle Sierra)