NYSE delists Magellan

Moody's cuts debt rating

Mental health insurer's shares fall to 2 1/2 cents

October 10, 2002|By Julie Bell | Julie Bell,SUN STAFF

Moody's Investors Service lowered ratings on Magellan Health Services Inc.'s debt yesterday, saying the mental health insurer's failure so far to complete its refinancing plans might harm its ability to renew a key contract.

Before the markets opened, the New York Stock Exchange suspended trading of Magellan's shares, forcing the company to move to the Over the Counter Bulletin Board.

The company's stock price and market capitalization - a measure of market value figured by multiplying share price by shares outstanding - no longer meet the exchange's criteria.

Shares now trade under the symbol MGLH on the bulletin board. They lost 8.5 cents yesterday to close at 2.5 cents, a 52-week low. The stock has fallen nearly 99.8 percent over the past year, wiping out about $397 million in market value.

At the close of the market yesterday, Columbia-based Magellan - the nation's largest manager of mental health care - had a market capitalization of $880,000. The company manages mental health care for 68 million people under contracts with health insurers, governments, corporations and others.

Moody's lowered ratings on about $1 billion worth of Magellan debt after the company announced this month that it had retained Gleacher Partners LLC to help it reduce debt. Moody's said that move was "in lieu of its previous refinancing efforts."

Moody's lowered ratings on Magellan's secured bank facility to Caa1 from B3, and lowered other debt ratings as well. It was the third such move by a rating service in less than six months.

"The company's got a very crippled balance sheet and they're scrambling," said Banc of America Securities analyst Todd Richter, adding that the Moody's downgrade and the move off the exchange were symptoms of Magellan's problems.

Magellan spokeswoman Erin Somers said yesterday that negotiating covenant waivers from banks was "still the plan," though she said she couldn't give an update on those efforts.

The company had said previously that it expected not to be in compliance with the terms of its bank loans when it announces financial results in January for its fiscal fourth quarter and year, which ended Sept. 30. "Without a successful refinancing, Moody's has increased concerns regarding the company's ability to renew its contract with Aetna," which expires Jan. 1, 2004, Moody's said. The contract accounted for $55.8 million of Magellan's $437.1 million in revenue in the third quarter.

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