Less than a year after healthcare receivables financier National Century Financial Enterprises collapsed under an avalanche of debt, another player in the risky factoring business may face a similar fate.
DVI, a Jamison, Pa.-based company that manages $2.8 billion in financed assets for physician practices and other healthcare providers, warned late Monday that it could be forced to seek Chapter 11 bankruptcy protection after failing to make an interest payment last week and running out of credit.
"DVI is actively pursuing various alternatives in order to address this situation. These alternatives include recapitalization, sale of its entire business or some or all of its assets, and a Chapter 11 bankruptcy filing," DVI says in a press release.
The company says it has used up all available lines of credit and is in default on a number of its credit facilities. On Friday, DVI said it was unable to make a scheduled interest payment of an unspecified amount on an outstanding bond issue. DVI says it has 30 days to "cure" the payment, but the company has nearly run out of liquidity as its credit rating has fallen.
"DVI's liquidity problems were further exacerbated as the result of a shortfall in the amount of qualifying collateral supporting its borrowings under its principal bank lending facility. The shortfall has triggered a default under the facility," the company said in a Friday statement.
Analyst Robert Napoli of US Bancorp Piper Jaffray downgraded DVI, and two major credit-rating agencies cut DVI's rating on Friday.
"We believe it may be difficult for DVI to get the funding it needs as quickly as it needs it, especially given that it has just hired a new auditor," Napoli writes in a research report. He was not immediately available for further comment.
DVI named BDO Seidman as its auditor on July 17. Deloitte & Touche quit in June after disagreements over the accounting treatment of several business deals between September 2001 and June 2002.
The Securities and Exchange Commission subsequently rejected DVI's 10-Q filing for the quarter ended March 31 because the report was not certified by an independent auditor.
DVI shares have lost nearly four-fifths of their value on the New York Stock Exchange since the Friday announcement. The issue plunged $1.70--more than 40%--on Friday to $2.50 from the previous close at $4.20, then slipped another $1.10 on Monday.
At midday Tuesday, DVI was trading at 91 cents, 35% off Monday's $1.40 close.
The company offers loans and leases, directly and through vendors, to help healthcare facilities finance diagnostic imaging and other medical equipment in addition to its buying accounts receivable from medical practices in need of working capital. It said as recently as May 20 that it had enough liquidity to pay for its business operations.
According to the uncertified SEC filing, DVI held net financed assets of more than $1.1 billion on March 3--the end of its third fiscal quarter--up 6.7% from $1.03 billion a year earlier. Earnings from equipment financing increased more than fivefold year-over-year, to $6.8 million from $1.2 million.
However, the company lost $300,000 from its receivables financing business for the quarter, vs. net income of $1.9 million during the prior-year period. DVI attributes $800,000 of the drop to costs associated with relocating this division from Newport Beach, Calif., to company headquarters in Pennsylvania, and another $800,000 to lower interest rates.
As of March 31, DVI had $515.9 million in receivables commitments, down 10.4% from $576 million on March 31, 2002, according to the 10-Q.
DVI has not reported its financial results for the quarter and fiscal year ended June 30.