Paracelsus Healthcare Corp., Houston, missed a $16.3 million interest payment due Feb. 15 on $325 million in debt, and a 30-day grace period is in effect.
"A failure of the company to make the interest payment within the 30-day grace period would result in a default, which could lead to a bankruptcy," said Michael Murray, an analyst with New York-based Moody's Investors Service.
Deborah Frankovich, senior vice president and treasurer of Paracelsus, would not comment on the possibility of a bankruptcy filing. She said representatives of the 10-hospital chain and its bondholders will discuss options for an alternative capital structure.
The announcement was followed by downgrades of the company's bonds by Moody's and Standard & Poor's, which pushed Paracelsus' ratings further into speculative territory.
As part of a debt restructuring, the company plans to offer equity to bondholders, which in effect would change the ownership of the company, said David Peknay, a director of corporate ratings at Standard & Poor's.
The New York-based credit-rating agency would view such an offer as tantamount to a default, Peknay said.
The company does not have a revolving credit facility, so it has relied on cash flow for working capital purposes.
Paracelsus also continues its search for a permanent chief executive officer. Interim CEO James VanDevender has extended his contract to lead the company through the end of this month, Frankovich said.
VanDevender replaced former President and Chief Operating Officer Charles Miller, who retired in July 1999.