Community Health Systems' stock price dropped about 11% over two days, ending at $4.43 at the close Wednesday, a fall that may have been prompted by a report that the hospital chain hired a prominent firm to help it restructure its debt.
The website Reorg Research reported midday Tuesday that CHS hired the financial advisory firm Lazard to help it format a plan to address its nearly $4.8 billion in long-term debt maturing in 2019 and 2020. The report also said a law firm was in talks with some CHS lenders on the same subject. The Franklin, Tenn.-based system's total long-term debt stands at nearly $14 billion, and if restructured under bankruptcy law, could hurt owners of the company's equity.
But Whit Mayo, an analyst with the financial services firm Baird, said the report that CHS is working with Lazard aligns with what executives detailed in the company's Feb. 28 earnings call. The Reorg article came off as "ominous," which he think spooked some investors.
"It shouldn't be terribly surprising that they've hired advisers, and they've begun the negotiation process with their unsecured lenders," Mayo said.
In that call, CHS Chief Financial Officer Thomas Aaron said the company was proactively managing its November 2019 maturities by replacing covenants, a move he called "a good first step." He said the company also lowered its revolving credit commitments.
"It does give us additional cushion than we otherwise would have had under the covenants," Aaron said.
Aaron did not mention hiring Lazard to help with that work. Asked about whether there is such a relationship, CHS spokeswoman Tomi Galin declined to comment in an email. A Lazard representative did not respond to a request for comment.
Aaron explained on the Feb. 28 call that the company's new covenant provides for a maximum first-lien net debt to earnings before interest, taxes, depreciation and amortization ratio of 5.25-to-1, gradually dropping to 4.25-to-1 by July 1, 2020.
This week's drop hasn't been as steep as CHS' 17% decline on the day of its Feb. 28 earnings call, when executives discussed the company's disappointing fourth-quarter and full-year 2017 results, including a roughly $2.4 billion net loss over the year.
CHS' stock is down 28% from the close Feb. 27.
In the fourth quarter, the company's revenue took a nearly 32% hit, dropping to about $3 billion from about $4.5 billion during the same period in 2016. During the same time period, CHS' total admissions dropped 19%.
