MedPartners' reputation among investors may have fallen, but its standing among banks is just fine, thank you.
MedPartners on June 9 closed a $1 billion credit facility, the largest of four major bank deals physician practice management companies completed in June. Few PPMs are able to raise cash by selling stock, but they are finding banks willing to provide the money they need to expand or shore up operations.
In recent months, the only PPM to close a stock deal has been Fort Worth, Texas-based ProMedCo Management Co. The multispecialty PPM sold 6 million shares for $11 per share, raising $66 million. But since the deal's closing in May, ProMedCo's share price generally has stayed below $11.
Three other PPMs completed lending deals recently, including Hollywood, Fla.-based Sheridan Healthcare. The company says it pulled its $15 million stock offering on June 8 due to "unfavorable market conditions." Instead, the multispecialty PPM was able to increase its credit facility from a group of banks led by NationsBank to $75 million from $50 million.
"Given the fact that (PPMs') stock prices are weak, using their stock as a currency is a lot less appealing to them," says John Fowler Jr., a PPM analyst at J.P. Morgan in New York. "It isn't just PPMs--as a general corporate matter, if corporations are unhappy with the stock price, they will use debt."
Fowler says some banks are interested in PPMs not only because they like the industry, but also because their loans are relatively secure. Their loans are usually the most senior debt, meaning that if a PPM gets into financial trouble, the banks will be the first to be repaid.
"If you're going to take on debt, the senior piece is the easiest to get," Fowler says.
MedPartners' $1 billion deal was led by NationsBank and included nine other banks from the United States, Canada and France. The credit facility includes a one-year loan, a three-year loan and a three-year revolving line of credit.
In a prepared statement, MedPartners President and Chief Executive Officer Mac Crawford says the banks recognized that the company had strong cash flow in its pharmaceutical services and contract medical services businesses. Crawford turned down an interview request from Modern Physician.
Also in his statement, Crawford says the credit facilities will allow MedPartners to put its turnaround program in place in its PPM division, which has been the company's big money-loser.
American Physician Partners, a Dallas-based radiology PPM, and Vision Twenty-One, a Largo, Fla.-based eye-care PPM, also announced in June that they had closed on loans.
APP had better luck with lenders than it did with a proposed $100 million bond issue, which was pulled in May.
Bonds are riskier debt than bank loans because, in the event of a company's bankruptcy or default, all bank loans would have to be settled before bondholders are repaid.
So on June 8, APP announced its lenders, led by GE Capital Corp., had extended its credit facility to $160 million from $115 million.
"The company found it was able to expand its capital base with the existing bank group in a more positive fashion than (the bond) offering," says APP CEO Mark Wagar. Analysts say that means the company might have found interest and payments on the bonds too expensive compared with those of a bank deal.
Vision Twenty-One is using its $100 million credit facility, closed June 10 with the Bank of Montreal, to repay a previous $50 million bank deal and pay for practice acquisitions. The company says it has 12 pending acquisitions worth $12 million.