Genesis Health Ventures held a conference call on Oct. 11 to explain the difference between itself and competitor Kindred Healthcare, which recently recorded approximately $55 million in additional costs for professional liability claims above its normal provision. The charge, caused by the dramatic increase in professional liability costs in Florida, led to concerns among investors that the sector as a whole could be affected, tainting competitors such as Genesis and Beverly Enterprises, according to investors.
Such sentiment is of particular concern for Genesis, which is in the market with a $200 million add-on term loan. "People are pulling back, trying to get comfortable with the liability reserves," one investor said. "The LIBOR plus 33/ 4% pricing has not yet changed, but it could increase to get the deal through." The add-on credit, which is being syndicated by Wachovia Securities and Goldman Sachs, backs Genesis' acquisition of NCS Healthcare and will be consolidated with an existing $285 million "B" piece and an existing $80 million delayed-draw term loan to form a new $565 million institutional tranche. Bankers at Wachovia declined to comment, and a Goldman official did not return calls.
In a statement, the company said, "Based on our most recent independent actuarial report, our claims experience continues to trend at levels at or below our maximum self-insurance limits. Genesis' exposure to patient liability costs is mitigated by limited exposure in states where liability awards and damages have risen most dramatically. Genesis owns or leases approximately 1,500 skilled nursing beds in Florida and has no beds in California or Texas." One banker emphasized that investors now understand the issue and have separated the companies. "One company's wrongdoing should not impact the entire long-term sector," he said, adding that the credit has never gone off-track and will get done.
The credit has hit one bump, however, with the decision by Standard & Poor's to assign a B+ rating, one notch lower than the Ba3 rating assigned by Moody's Investors Service. The rating decision led to pricing being flexed upward from LIBOR plus 31/ 2% (LMW, 10/14).