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Magellan Warns About Bank Covenant Worries

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NU Online News Service, Aug. 13, 11:48 a.m. – Magellan Health Services Inc., Columbia, Md., could breach the covenants on a bank credit agreement this quarter, the company says.

Magellan, a company that manages mental health care and substance abuse treatment for 69 million U.S. residents, has been reporting profits for several years, but it still has a substantial amount of bank debt left over from years when it did poorly.

The company is trying to get a long-term revolving credit facility that it can use to refinance the bank debt.

If the company fails to refinance the bank debt soon, the resulting breach of bank credit agreement covenants “could result in an acceleration of our debt maturities,” Mark Demilio, Magellan’s chief financial officer, says in a statement. “In the absence of such refinancing of our bank term debt with our current bank group or third parties, there would be no assurance that we would meet our covenant and liquidity requirements.”

Unless Magellan can find new financing, its auditors might have to issue a “going concern” warning in their opinion about Magellan’s Sept. 30 financial statements, Demilio says.

Magellan uses a fiscal year that starts Sept. 30, meaning that the current quarter is its third quarter.

The company is predicting that it will report $42 million in operating profits in the fourth quarter.


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