Not all for-profit hospital companies are riding the recent wave of positive industrywide earnings growth.
Paracelsus Healthcare Corp., a financially troubled Houston-based hospital chain, said last week that it's likely to file a voluntary bankruptcy petition under Chapter 11 within several months.
The announcement comes at a time when other investor-owned hospital chains are reporting significant profit jumps. For their most recent quarters, Tenet Healthcare Corp. reported a 21% increase in net income, Health Management Associates reported a 13% profit increase and Universal Health Services reported a 1.3% jump in profit (July 31, p. 19).
In contrast, Paracelsus has defaulted on interest payments due on $325 million in senior subordinated notes and has nearly fallen off the radar screens of healthcare analysts and bond-rating agencies. The company began missing deadlines for the $16.3 million interest payment last February, missed yet another deadline last week and has yet to reach an agreement with the holders of the affected notes.
"Based upon the most recent discussions with the noteholders, the company believes it is likely that a restructuring plan will be implemented in the near future through a voluntary filing of bankruptcy under Chapter 11 of the Bankruptcy Code," the company said in a written statement.
Paracelsus officials have mentioned the possibility of a bankruptcy filing before, but now a filing appears to be a near certainty.
Deborah Frankovich, Paracelsus' senior vice president and treasurer, said the company could file within 90 days.
"This should come as no surprise to anybody," she said.
Paracelsus would likely file a petition that would not involve any of the subsidiaries that operate the company's 10 hospitals, Frankovich said.
"None of them guarantee the subordinated debt that is being restructured," she said.
Paracelsus subsidiary PHC Finance filed its own voluntary bankruptcy petition with the U.S. Bankruptcy Court in Houston on March 15.
Last year, Paracelsus sold five of its strongest hospitals, all in the Salt Lake City market, to Iasis Healthcare, based in Franklin, Tenn. Since Paracelsus merged with Champion Healthcare Corp. in 1996, it has cut its portfolio to 10 hospitals from 31.
In the past four years it has been besieged by legal and financial turbulence as well as management turnover. It faced shareholder litigation related to the merger, which the company settled in September 1999 for $14 million. The company also took a $2.2 million charge in June 1999 for employee terminations and has paid millions of dollars to arrange or terminate agreements with its former executives.
Paracelsus' net loss swelled 21% during its second quarter ended June 30. The company reported a net loss of $9.2 million, or 16 cents per share, for the quarter, compared with a net loss of $7.6 million, or 14 cents per share, for the year-ago quarter.
Net revenue declined 36% to $91 million, from $143.3 million for the same period of 1999.