The debt of long-term acute care hospital players such as LifeCare Holdings, Select Medical and Triumph Healthcare has been steadily ticking up, according to traders, as they ride news that Medicare reimbursements won't be squeezed as much this year as they were last. "It is not as bad as people thought it would be--it is not as bad as last year," one banker said. "They are doing OK."
The boost comes courtesy of the Centers for Medicare and Medicaid Services which released proposed payment changes recently. Last year it initially proposed a cut to Medicare reimbursement of about 10.4%, but it estimates this year the figure will be around 2.9%.
Investors focus on these payments because this funding can make up a big chunk of revenue. In the case of Select, some years, Medicare can make up more than 70% of its revenues (CIN, 1/30/2006). If the funding is cut too much, it can lead to ratings agency action and potentially to the companies tripping covenants.
According to Markit, LifeCare's term loan "B" was trading between 95.417-97 on Thursday, steady for most of last week. It gained from earlier in January when it had been trading around 93.833-95.5 Jan. 9. Its 9.25 '13 notes were trading around 79.75-82.15 on Wednesday, up from 63.25-67 on Jan. 16, according to NASD.
Select Medical's term loan was trading around 99.341-99.846 Thursday, also even for the week, but up from 98.675-99.275 on Jan. 15 before the news. According to NASD, its 11.175 '15 notes were trading between 90.25-93.50 on Wednesday as compared with 83.50 on Jan. 10. Triumph's term loan "B" was trading between 100.083-100.625 Thursday. It had been trading around 99.313-100 on Jan.15, according to Markit.
This time last year, the debt of these companies took a hit with LifeCare Holding's 9 1/2% '13 bonds dropping 20 points to 57 and its term loan down about five points. Select's 7 5/8% '15 bonds were down seven points to 90 and its term loan was down to 98 3/8 from par (1/30/2006).
According to a release from CMS, the proposed total payments will be $4.4 billion for 2008. In a report on the sector, Moody's Investors Service said while the proposed changes are not as drastic as those proposed last year, they will still pressure the credit metrics of the companies in the sector. A call to Patricia Rice, Select president, and an offical at LifeCare were not returned by press time. A Triumph spokeswoman did not return an email. A CMS spokeswoman also did not return a call by press time.
