The distressed hospital chain Community Health Systems announced Thursday it has retained a team of advisers from prominent financial firms, including Lazard, to help the company restructure its debt.
The news follows an 11% stock price drop over a two-day period this week after a report surfaced that the Franklin, Tenn.-based chain had hired financial advisory firm Lazard to help it formulate a plan to address its nearly $4.8 billion in long-term debt maturing in 2019 and 2020. The report also said CHS lenders were speaking with a law firm on the subject.
CHS has also brought on Citigroup Global Markets, Credit Suisse Securities and JPMorgan Chase Bank in an extensive effort to manage its debt maturities and capital structure, the chain announced in a U.S. Securities and Exchange Commission filing Thursday morning. CHS spokeswoman Tomi Galin declined to comment beyond Thursday's filing.
Community Health's stock price was close to flat during midday trading with an increase of $0.03 per share.
In the company's earnings call on Feb. 28, CHS Chief Financial Officer Thomas Aaron said the chain had replaced debt covenants, a move he called "a good first step." He said CHS had also lowered its revolving credit commitments.
"It does give us additional cushion than we otherwise would have had under the covenants," Aaron said.
Whit Mayo, an analyst with the financial services firm Baird, said Wednesday that it shouldn't surprise anyone that CHS has hired financial advisors to help with its previously announced debt restructuring.
The company needs to deal with its looming maturities well before they are one year out, which gives them between now and 6 months from now to begin negotiations with their bondholders to refinance the debt, he said. The problem, however, is that CHS is operating at a low run rate with cash flows deteriorating.
"Unfortunately the situation turns into what I call a circular reference, where the cost of servicing your debt just gets to a point where it's so high that they run out of money," Mayo said.
CHS' total long-term debt stands at nearly $14 billion, and if restructured under bankruptcy law, could hurt owners of the company's equity.
In addition to the debt restructuring, CHS also reiterated Thursday its goal of making $1.3 billion in proceeds from hospital divestitures this year. That includes $374 million CHS said it expects to make in the second quarter of 2018 on the sale of 10 hospitals for which it has signed non-binding letters of intent with potential buyers.
CHS also said it has definitive agreements with potential buyers on three previously announced divestitures of hospitals in Tennessee, Louisiana and Florida. The system expects to make $14 million on those sales in the first and second quarters of this year.
As for the more than $900 million in additional proceeds CHS would need to make on divestitures to hit $1.3 billion in 2018, the chain wrote it is in active discussions with potential buyers ranging from in-bound requests to anticipated letters of intent. Although, CHS wrote that some of that pertains to hospitals already under letters of intent.
