Refinancing of high cost debt. MRGE currently carries $252M of 11.75% notes (~12.25% fully
loaded) which equates to interest payments in excess of $30M annually (compares to our 2013
adjusted EBITDA of $60.5M). Early repayment penalties make refinancing prior to May 2013
unlikely, but we would expect MRGE to take action thereafter. In today’s market, we believe MRGE
could refinance its current debt at 7%-9% (we model 8%). Clearly, numerous scenarios could play
out, but we view a debt refinancing event at lower rates by mid-2013 as likely, even though a most
Street models do not include.
Stage 2 Meaningful Use adoption. We believe recently finalized Stage 2 requirements will aid
MRGE in two ways. First, we expect renewed HCIT investment as eligible providers and
organizations make buying decisions and begin planning for Stage 2 implementation and second,
we believe optional imaging components contained in Stage 2 rules will catalyze growing demand
In order to make it worthwhile, they have to extend the duration out to about 2020. They also have to pay $106 and change, so the totoal will become around $267 plus fees. Probably looking at $275. Applying 8% to that is $20 million, or $10 million less than at present. That equates to 11 or 12 cents a share.