Paracelsus Healthcare Corp. has faced legal and financial challenges during most of its short life as a public company. But with two top executives recently out the door and attempts to sell off several hospitals moving more slowly than expected, the beleaguered and highly leveraged company has turned to an investment bank to help it find a financial angel.
Whether it can find a buyer or a partner as it looks for a permanent chief executive officer remains to be seen. But in the meantime, Paracelsus stock is hovering around $1 per share, and the Houston-based company has nearly dropped off the radar screens of investors.
The plight of Paracelsus is linked to effects of an extremely high debt-to-equity ratio, the resignations of two top executives and shareholder lawsuits dating back to its 1996 merger with Champion Healthcare Corp.
The company, which owns 15 acute-care hospitals, in March announced a settlement of the shareholders' lawsuits, which have since been consolidated into one class-action suit in the U.S. District Court, Houston. The settlement was approved last week and is expected to be completed within 40 days.
Meanwhile, the company has been grooming itself for possible suitors. It has retained Chase Securities since early this year to explore options for raising equity-including selling the company-and in the absence of a suitable buyer, divesting more hospitals, said Lawrence Humphrey, executive vice president of corporate finance.
Observers have said the most favorable buyer would be a private company with little debt that might want to go public and would bring equity capital to the negotiating table. But so far, no candidates have surfaced.
The company's current debt-to-equity ratio is extremely high, at 90% debt to 10% equity, compared with the company's goal of 60% debt to 40% equity, Humphrey said.
Paracelsus early this month completed the sale of four skilled-nursing facilities in California to Sunland Associates, a private company in Ooltewah, Tenn., for $6.9 million, according to a Securities and Exchange Commission filing.
The sale price works out to approximately $29,741 per bed, slightly above the five-year average price in California of $28,000 per bed, said Stephen Monroe, editor of SeniorCare Investor, an industry newsletter.
Paracelsus has also been trying to divest its noncore hospitals. Its most recently announced transaction is the sale of three hospitals to a start-up company called Associated Healthcare Systems, based in Alpharetta, Ga. The original transaction was for four hospitals, but one has since been dropped from the deal because of poor performance, said A. Ronald Turner, founder of the new company. He declined to specify which of the four had been removed from the deal. That sale is expected to close by the end of August.
Meanwhile, Paracelsus recently reached an agreement with James VanDevender, interim CEO and former senior executive vice president and chief financial officer, who replaced former CEO Charles Miller when he resigned July 1. The agreement includes financial incentives for VanDevender to stay on through the end of the year. Also, Ronald Patterson, executive vice president and president of healthcare operations, left, effective July 1.
The company hopes its reorganization will be completed by the end of the year, Humphrey said. Although VanDevender is being considered for the position of CEO, the company's board of directors is also conducting a national search, Humphrey confirmed.
Also, within the last several weeks, Paracelsus eliminated 30 positions at its corporate level, but only 12 people lost jobs, Humphrey said.
"As we have divested some of our hospitals, we have found it necessary to revisit the amount of corporate overhead that a smaller company with a smaller number of hospitals requires," Humphreys said.