After defaulting on a $16.3 million interest payment, Paracelsus Healthcare Corp. raised the specter of a bankruptcy filing in its annual report to the Securities and Exchange Commission.
Independent accountants for the Houston-based 10-hospital chain expressed uncertainty about whether Paracelsus would be able to continue as a going concern, according to the SEC filing.
Paracelsus first missed the interest payment on $325 million in senior subordinated notes in mid-February. It missed a second deadline in March after a 30-day grace period ran out (March 20, p. 16). The company is trying to negotiate a new capital structure with its noteholders, but no agreement has been reached.
A potential bankruptcy or other corporate restructuring would not affect Paracelsus hospitals, which are each separate, subsidiary corporations that do not guarantee the debt of the parent company, said Deborah Frankovich, Paracelsus' senior vice president and treasurer.
"What you need to realize is that it should be considered only in the context of the parent company," she said. "The subsidiaries do not secure or guarantee parent-level subordinated debt."
The company also said it has received a commitment for $62 million in secured financing to replace its current financing facility, on which it is partly in default. The new funding would be secured by all accounts receivables of the company's hospitals as well as by a mortgage on 117-bed Lancaster (Calif.) Community Hospital and 176-bed Medical Center of Mesquite (Texas), Frankovich said. "The hospitals are the borrowers, with the understanding that the parent might have to go through a restructuring," she said.
After Paracelsus sold five Salt Lake City-area hospitals last year to start-up company Iasis Healthcare Corp., the company's largest cash contributor became 203-bed Dakota Heartland Health System in Fargo, N.D., which accounts for 45% of Paracelsus' cash flow.
Also in the annual report, the company noted that construction is under way on a third competing hospital in the Fargo market and that the increase in competition could reduce patient volumes at its Fargo hospital after 2000.
"To have a competitive threat like North Dakota looming, you continue to have a concern about the future of this company," said David Peknay, director of corporate ratings for bond-rating agency Standard & Poor's. "They are in a difficult situation."
For the year ended Dec. 31, 1999, the company reported a net loss of $33.6 million, or 60 cents per diluted share, compared with a loss of $6.2 million, or 11 cents per diluted share, in 1998. The company's revenue was $516.6 million in 1999, a 22.2% drop from $664.1 million for the same period in 1998.
Robert Smith, 48, became chief executive officer of Paracelsus on March 27, replacing James VanDevender, who had been interim CEO since July 1, 1999.