Gentiva Loan Pushed Back Amid Soft Demand, SEC Probe
Published Thursday, 22nd July 2010 06:31 am - © 2010 Dow Jones
By Katherine Greene
Of Dow Jones NEWSWIRES
NEW YORK -(Dow Jones)- If Gentiva Health Services (GTIV) wants to secure the $600 million it needs to buy Odyssey Healthcare (ODSY), it may have to give lenders better terms or more money.
The banks arranging Gentiva's loan have postponed closing the deal until at least next week, according to people familiar with the transaction. That suggests they're reworking the terms with investors who were already skittish, the people said.
Last week, Gentiva said it had received a notice from the SEC requiring it to preserve documents, an indication it could be included in an investigation into whether health-care companies pushed patients into extra home-healthcare visits to secure more in reimbursements from a government program.
Potential buyers into the loan said as early as last week they were nervous about committing to the deal, wanting to wait and see how the investigation might affect their investment.
Then, in another blow, the Centers for Medicare and Medicaid Services said Monday it would cut home health-care payments industrywide by $900 million, potentially affecting Gentiva's future earnings.
By the time Gentiva executives told investors Wednesday that the company was cutting its earnings forecast for this year, some lenders were already deciding they'd pass on the loan.
Several portfolio managers at large leveraged-loan funds said they were no longer considering the deal, saying there were other health-care loans to buy from companies with fewer complications.
The original facility comprised a $125 million revolving loan and a $200 million term loan marketed to banks, plus a $600 million term loan marketed to a wider investor pool. That deal was expected to price at 450 to 475 basis points over the London interbank offered rate, which tracks the amount banks charge one another to borrow, with a 1.75% minimum Libor rate. Initial investors in the deal would also be granted a discount of two cents on the dollar, in what's referred to as the original issue discount, or OID.
Bank of America Merrill Lynch, Barclays Capital, GE Capital and SunTrust are running the deal.
Considering the doubt surrounding the company and other options for investors, market participants said Gentiva's banks will have to tack on more yield to close the deal.
InVentiv Health Inc., which is undergoing a buyout by private equity firm Thomas H. Lee Partners, is selling its $525 million term loan at 500 basis points over Libor and a two-cent OID. That deal is expected to close early Thursday.
And several other deals on the loan market's forward calendar are selling at higher yields than Gentiva's offering, according to KDP Investment Advisors.
Regardless of pricing, Gentiva needs the loan--it can't back out of the deal to buy Odyssey, according to the agreement. And banks have already committed to fund the revolver and smaller term loan portion of the facility.
The company has been telling investors it's not worried about securing the funds, several said. But, they pointed out, the company can't exactly afford to show weakness in the face of lenders turning their backs on the loan.
Representatives of the banks running the deal couldn't be reached for comment, nor could executives at Gentiva.
-By Katherine Greene, Dow Jones Newswires; 212-416-2984; email@example.com