PacifiCare is regrouping after dropping plans to refinance $705 million in debt.
Its stock price dropped from $15.48 per share on July 25--the day PacifiCare announced that it had failed to get the financing it sought--to $12.37 by July 31, a 20% loss of value.
PacifiCare continues to be profitable and has not lost any money, says Dan Yarbrough, manager of investor relations.
Company officials in mid-July failed to get $1 billion in financing after Morgan Stanley Dean Witter & Co. failed to sell $600 million in junk bonds.
The plan was to arrange a $400 million loan to refinance bank debt that is due to mature in January, contingent upon selling the junk bonds. Investors reportedly were concerned about rising medical costs.
On July 27, company officials dropped plans to seek refinancing.
"We are sitting down and discussing what our options are," Yarbrough says. "We are still talking with our current bankers and discussing what options are available."
Yarbrough says he doesn't know what financing plans are being considering and whether those possibilities include bankruptcy filings.
PacifiCare continues to satisfy all requirements for cash reserves for all states in which it operates, officials say. The company has $130 million in cash on hand at the corporate level in addition to the $2.2 billion in total cash and marketable securities at the subsidiary levels.
The company has taken a beating in recent months because of its heavy involvement in Medicare+Choice. PacifiCare is the biggest payer participant in Medicare+Choice, with about 60% of its business coming from Medicare.
Earlier this year, company officials said they expected an enrollment decrease for several reasons: Some employer groups won't renew due to high premium increases, PacifiCare has exited some unprofitable markets and it ended relationships with some physicians.