A successful business model and a positive historical performance of Province Healthcare bodes well for the company's $200 million revolver being arranged by Wachovia Bank. Russell Pomerantz, v.p., senior analyst at Moody's Investors Service, additionally noted the health care sector is a relative safe haven amid recent market turmoil and the positive factors that supported the sector pre-Sept.11, have not gone away. The $200 million credit has been assigned a Ba3 rating by Moody's. Moody's has also given $150 million senior subordinated notes a B3 rating and a $50 million secured end loaded lease financing a Ba3 rating.
Province has historically had weak cash flow. The company grows through acquisitions and cash flow has not yet caught up with the growth, explained Pomerantz. By mid 2003, cash flow is expected to have improved though, he noted. Additionally, Province has good debt-protection measures, though management has said the pipeline is strong for acquisition activity that could weaken these credit-protection measures.
Like their competitors, LifePoint Hospitals and Community Health Systems, the strategy is to acquire smaller, less efficient hospitals in non-urban areas, Pomerantz said. By having the extra resources and capital, Province is able to bring in surgeons and doctors that may not work in these hospitals, stemming the out-migration to other larger hospitals. Expertise in running the hospitals is added and the business model is good. "They do their demographics well and the small towns are not shrinking," he said. The wider positive factors are the lower levels of managed care and labor pressures, including nursing and a more favorable reimbursement environment compared to recent years. Access to the capital markets for both equity and debt reflects this and adds to the attractiveness of the sector. Calls to Merilyn Herbert, an official with the company, were not returned.