Extendicare Health Services is looking to take out its revolver borrowings and "A" and "B" paper through a $150 million senior note offering. The long-term care operator also is negotiating a new $100 million revolver, noted Philip Small, senior v.p. of strategic planning. "There is some debt that is due in 2003, and we see the market as good for healthcare high-yield right now," said Small. Replacing the term loans with notes extends the maturity to 2010 and leaves the revolver undrawn, he added.
Bank of America currently leads the bank facilities, but Small declined to say which bank would lead the new five-year revolver. Lehman Brothers is managing the note sale and, according to one banker, is arranging a club-style syndication of the revolver.
Small would not name competitors that have tapped the high-yield markets recently, but he said a number are looking at the option. Any company in this sphere has to do so under the spectre of reimbursement, however. "Although the proposed refinancing would address near-term debt maturities, thin credit-protection measures are a concern, particularly in light of ongoing risks with reimbursement rates," commented Standard & Poor's credit analyst David Peknay. Government reimbursement is not only restrictive but is also the largest source of payments to the company, providing over 75% of its revenues. Extendicare is particularly vulnerable to changes in Medicaid payments as more than 80% of its resident bed capacity is located in six states and rate increases are expected to be limited by growing state budget pressures, according to Peknay. S&P has rated the new revolver BB- and the proposed notes B-. Small rejoined that there has been uncertainty since the Balanced Budget Act of 1997 and this has been factored in.