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Why Community Health Systems Spiked on Wednesday

By Eric Volkman - May 5, 2021 at 5:27PM

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The hospital operator makes a smart and opportunistic refinancing move.

What happened

Community Health Systems (CYH 2.56%) announced Tuesday afternoon that it is floating over $1.4 billion in new debt. The operator of acute care hospitals saw its stock rise by nearly 11% the following day as a result.

So what

All told, $1.44 billion worth of junior-priority secured notes are being floated in Community Health's issue, at a rate of 6.125%. The notes mature in 2030.

This substantially cuts the cost of the company's borrowings and gives it several more years to repay them -- Community Health will use the issue's proceeds, combined with cash on hand, to redeem all of its outstanding 8.125% junior-priority secured notes. These mature in 2024.

Stethoscope atop $100 bills and pennies

Image source: Getty Images.

The announcement comes less than a week after Community Health released its Q1 earnings. It flipped to a surprise net profit for the quarter while topping the average analyst revenue estimate.

Although the vast improvement on the bottom line was due largely to support payments from the Public Health and Social Services Emergency Fund, the healthcare company's performance was nevertheless impressive. It suffered a significant drop in admissions, not least because many would-be patients have delayed certain procedures during the coronavirus pandemic. In spite of that, it saw only a slight revenue dip in the quarter.

Now what

The afterglow of a positive earnings report is a fine atmosphere in which to do some refinancing. Meanwhile, admissions should improve for Community Health as we emerge from the pandemic, hopefully providing a longer runway for the company's growth.


Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Community Health Systems, Inc. Stock Quote
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