Genesis' credit rating falls to `D' after missed payment

Moody's downgrades nursing home chain

March 23, 2000|By M. William Salganik | M. William Salganik,SUN STAFF

Genesis Health Ventures Inc., a nursing home chain with about 50 homes in Maryland, has had its credit rating lowered after it failed to make a $3.8 million interest payment due Monday.

Genesis, based in Kennett Square, Pa., had its corporate credit and bank loan rating downgraded to "D" -- the lowest rating -- from "B" by Standard & Poor's. A "D" rating signifies a company in default on some of its payments.

Moody's Investors Service downgraded the largest chunk of Genesis credit to "Caa" from "B2." According to Moody's, a Caa rating means "in default or -- present elements of danger with respect to principal or interest." A B2 rating means a company's bonds "lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small."

On Tuesday, Genesis announced that it had missed the payment, then said it had asked for and received a 60-day grace period from its lending banks. During the 60 days, the company said, it will seek to restructure its $1.5 billion in debt.

Some analysts said the restructuring effort could be a prelude to a filing for bankruptcy protection. Four of the seven largest nursing home chains have filed in U.S. Bankruptcy Court over the past year. Their revenue dropped with a cut in Medicare reimbursement rates under a new prospective payment system (PPS) that pays a fixed daily rate rather than reimburses the nursing home for its reported costs.

Genesis spokeswoman Lisa Salamon said the company has a positive cash flow, unlike the chains that went into bankruptcy, and still hopes to avoid bankruptcy by restructuring debt and selling assets.

In explaining its downgrade, Moody's noted that Genesis, and a related company, Multicare, which also had its rating downgraded, "have suffered a deterioration in operating results and financial condition stemming from the impact of Medicare PPS combined with high leverage."

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