The nursing home industry continued to nosedive last week, as rating agency Standard & Poor's downgraded debt held by several companies. One of them, Sun Healthcare Group, said its assets were overvalued.
Standard & Poor's lowered ratings on $8 billion of debt held by four nursing home companies, citing the impact of Medicare's prospective payment system for skilled-nursing facilities. The rating agency had placed most of those companies on CreditWatch with negative implications last November.
The rating agency lowered corporate debt ratings to reflect "significant near-term liquidity issues" for Genesis Health Ventures, Kennett Square, Pa.; Integrated Health Services, Owings Mills, Md.; Mariner Post-Acute Network, Atlanta; and Albuquerque-based Sun, according to Standard & Poor's analyst Elie Radinsky.
Also last week, Sun said it was re-evaluating its assets and will write down goodwill, the acquisition price paid above fair market value. The company's goodwill related to operations in the U.S. and the United Kingdom in its fourth- quarter earnings report.
Sun's most recent acquisition added 74 nursing homes to its U.S. network in June 1998, bringing its total to 392.
The current B- corporate credit rating on IHS, Mariner and Sun-as well as Vencor, which was downgraded in January-indicates "serious financial difficulties," Radinsky said. These companies may need to sell parts of their businesses to meet their debt obligations.
Sun's announcement of impaired goodwill follows a statement last month that the company expected "significant (operating) losses" in the fourth quarter of fiscal 1998 and that it had cut 7,500 positions.
Sun said it will report its 1998 earnings by the end of March.
