Kindred is a nationwide healthcare provider, specialising in post acute care in the US and is positioned to benefit from long term demographic trends
The US healthcare sector is facing a lot of regulatory uncertainties, especially in light of President Trump’s rhetoric about “repealing Obamacare”, and as such healthcare stocks and high yield bonds have suffered a period of underperformance.
In a nutshell, “Obamacare” (or the Affordable Care Act) allowed around 20 million Americans to have access to health insurance who would not have otherwise been insured.
Obamacare prevented insurance companies from refusing health insurance to certain applicants who would not otherwise qualify, and also expanded the state health insurance net of Medicaid in 32 states. It is the roll back of Medicaid expansion which poses the greatest threat to US healthcare companies, due to the anticipated reduction in Medicaid reimbursement revenues.
As the dust settles and the Republican Congress begins to soften its stand, choosing to substitute “repeal” with “repair”, we highlight a new high yield bond opportunity from the sector.
We have chosen to focus on well known healthcare providers with established brands and operational scale. This issuer is publicly listed and has relatively large bond issue sizes, which is beneficial for information transparency and trading liquidity.
As regulatory uncertainties continue, positioning in this sector should focus on companies who stand to benefit if the repeal rhetoric is scaled back, or who are relatively insulated from the threat of repeal due to their sector specialisations.
Kindred Healthcare is America’s number one operator of home health services and hospices, under the well known brand of Kindred at Home. This segment of the healthcare market is relatively insulated against the potential threat of Obamacare repeal due to the more elderly demographic it serves, who are covered by Medicare and were not particularly impacted by the expansion of Medicaid. However, as with all investments, there are risks to consider with each of these opportunities.
Current indicative yield to worst for the fixed rate bond maturing in January 2023 is 10.15%* per annum. Minimum investment is US$10,000. The bonds are only available to wholesale investors.
Please see here for our factsheet and a more detailed discussion of the strengths and weaknesses of the bond.
*Indicative only and accurate as of 7 February 2017, but subject to change.