PacifiCare Health Systems bought itself time with a credit extension after an attempt to refinance its existing bank line fell short. The company had lined up a $1 billion bank credit contingent upon the successful completion of a $600 million bond offering. But the bond deal did not fly, so Pacificare instead extended the maturity of its bank debt with a $650 million term loan and a $150 million revolver that refinances an existing $705 million in bank debt, said Suzanne Shirley, director of investor relations. The new financing will buy the company some time while it completes its turnaround plan, Shirley said. With the extension, pricing was upped to LIBOR plus 31/2%, compared to LIBOR plus 2%. There were additional covenant changes that Shirley declined to disclose at this point. Funding will go toward operating expenses. The company stuck with existing lead arrangers Bank of America, J.P. Morgan and Citigroup and did not add any new members to the 31-member syndicate. Shirley says the company is hopeful it can execute a bond offering in the future, but notes that now isn't the time. "The market just wasn't cooperative on our attempt to get high-yield financing," she said. "We certainly hope conditions improve and we can still seek an alternative type of financing. In the meantime, we're going to make progress." She noted that companies outside of the health care sector have also made unsuccessful attempts at getting a bond deal this year. PacifiCare has announced a turnaround plan which includes diversifying its product line and eventually moving beyond health insurance and getting into broader health services. "We looked at every alternative for financing since the beginning of the year. While the [bond deal] was our first choice, we knew the bank group would be supportive and a bank deal was the most viable alternative," Shirley said. "PacifiCare is in a distinct situation with the fact that we are going through a turnaround."
PacifiCare Gets Extension