J.P. Morgan and FleetBoston Financial may have to increase pricing on a $250 million credit for National Mentor as the banks struggle to attract investors. Commitment levels for the BB- rated deal that was launched on Feb. 10 could not be determined. "Investors have been a little more wary these days of non-investment grades. It's not specific to the company so much as the general look of the market," a source said. A FleetBoston official declined to comment.
Investors have pointed to the problem of reimbursement from a company that depends entirely on state and federal funding. National Mentor, a national healthcare provider of services for the developmentally disabled and emotional challenged, is 100% reimbursed by Medicaid. Another investor noted that the company has a high senior leverage with a debt-to-earnings ratio of three times. Calls to National Mentor's cfo, John Gillespie and spokeswoman were not returned.
The credit facility comprises of a $175 million "B" loan with a spread of LIBOR plus 4% and a $75 million revolver, which carries pricing at LIBOR plus 3 1/2%. According to an investor, National Mentor plans to use the credit to buy a complementary health business.