National Medical Enterprises is negotiating with bank lenders on the company's $250 million of its debt, which was reclassified from long-term to current on April 1.
Such a move often signals that a company is trying to obtain more favorable terms on its loans.
While it looks for financial flexilility, the Santa Monica, Calif.-based hospital chain also is seeking new operational efficiencies. As part of that effort, NME last week hired McKinsey & Co., a prestigious New York-based management consulting firm, to review its operations. The review, to be completed within three to four months, is expected to result in the loss of jobs by at least some of NME's 900 corporate employees.
Some downsizing might be warranted. In contrast to NME, Columbia/HCA Healthcare Corp., the nation's largest system with 196 hospitals, has 1,685 corporate employees in Louisville, Ky., and Nashville. That's less than twice the number of NME's corporate workers, even though Columbia operates four times as many hospitals.
However, NME executives said they're not trying to compare their company with other hospital chains. McKinsey was commissioned to fit NME with a "nimble, cost-effective" corporate structure, according to Michael H. Focht Sr., the company's president and chief operating officer.
Meanwhile, NME downplayed the status of its bank debt, saying that it disclosed last November that the banks would reclassify the debt on April 1. "We've been trying to negotiate better terms," said Diana Takvam, an NME spokeswoman. She said the hospital chain isn't in violation of any loan covenants.
The hospital chain has been talking to bankers since last fall, when its loan schedule was revised after federal agencies launched a massive criminal and civil investigation into NME's psychiatric hospital operations. Under that agreement, the bank debt, which had been scheduled to convert to a five-year loan, was revised to become "current" on April 1, one year before the loans mature.
As part of the agreement, NME repaid $50 million of the $300 million in debt.
The reclassification indicates that NME is positioning itself for even more alterations in its loan covenants.
Michael Kaplan, healthcare analyst for Standard & Poor's Corp., a New York-based bond rating agency, said the change in loan status won't affect the company's bond rating of BB, a speculative grade. He said the rating already reflected NME's need to refinance some debt in the near future.
He also noted that the company's recent sale of its rehabilitation hospitals and impending sale of its psychiatric facilities will give NME more cash.
NME executives dismissed speculation that the McKinsey effort is one to groom the company for sale. "It would seem to make little sense to conduct such an extensive analysis if that is the intention," Ms. Takvam said.
"I don't think they're going to sell the company," said Andrew Feinman, healthcare analyst for First Albany Corp., an Albany, N.Y.-based investment banking firm. "I think the plan is to grow."
The value of NME's total assets exceeds $3 billion.