Genesis seeks to restructure $1.5 billion debt

Nursing home chain misses interest payment

March 22, 2000|By M. William Salganik | M. William Salganik,SUN STAFF

Genesis Health Ventures, the Pennsylvania-based nursing home chain with extensive operations in the Baltimore area, said yesterday that it had missed a $3.8 million interest payment due this week and was negotiating with its lenders to restructure its $1.5 billion debt.

Most of its lending banks agreed to a 60-day grace period on payments for the restructuring costs, the company said.

The announcement caused a sharp drop in an already-depressed stock price -- down 68.75 cents to 81.25 cents a share, for a loss of 46 percent. The stock was trading near $30 a share two years ago.

"It's hard to tell whether they're taking a grace period just because they can, to conserve cash, or whether this is the first step to Chapter 11," said Stephen M. Monroe, editor of the SeniorCarecq Investor, an industry newsletter.

Four of the nation's seven largest nursing home chains, including Sparks-based Integrated Health Services, are already operating under bankruptcy protection -- with most filing for bankruptcy protection a few months after announcing debt restructuring efforts. A key source of the industry's problems has been a cut in Medicare reimbursements.

But Genesis is different, said Lisa Salamon, a company spokeswoman. "We have a positive cash flow at this point, and the other four did not," she said. "That makes a big difference when you go to the banks and ask to restructure."

Robert M. Mains, an analyst with Advest Inc. in Saratoga Springs, N.Y., also pointed to the fact that Genesis "is making money on a cash basis" -- that is, from operations, not counting debt service -- as one of "two things Genesis has going for it that Integrated didn't."

The other, he said, is the $50 million cash infusion Genesis got in November from two venture capital groups, the Cypress Group and Texas Pacific Group.

Mains said Genesis has three ways to solve its immediate problems. Banks could agree to restructure the debt, especially with higher Medicare rates scheduled to go into effect soon. Cypress and Texas Pacific could provide more money to protect their previous investment. Or Genesis could sell assets to pay off its debts.

Genesis says it has been trying to sell assets, but potential buyers cannot get financing.

In Maryland, Genesis has 50 skilled nursing centers, with about 7,800 beds, which it owns or manages or for which it has what amounts to a franchising agreement. Nationally, it owns or manages 338 facilities with 41,000 beds.

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