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LTC Provider Makes Deal with Lenders

By Allison Bell

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A long-term care (LTC) provider is hoping for the best but planning for the worst.

Sun Healthcare Group Inc., Irvine, Calif. (Nasdaq:SUNH), says it has volunteered to pay down $50 million in senior secured facility credit early and agreed to a 1.25-percentage-point increase in the interest rate to get more flexible loan covenants.

The covenants relate to the company’s maximum leverage ratio and its interest coverage ratio.

The Centers for Medicare and Medicaid Services (CMS) reduced the Medicare reimbursement rate for skiled nursing facility care Oct. 1., and Sun changed the credit facility agreement to cope with the reimbursement changes, the company says.

Sun generates $1.9 billion in annual revenue. It runs 165 skilled nursing centers; 14 facilities that combine skilled nursing, assisted living services and independent living services; the SolAmor Hospice business; and a variety of other health care facilities and programs.

Sun says in a quarterly financial report filed with the U.S. Securities and Exchange Commission that it set up the senior credit facility with a syndicate led by Credit Suisse in October 2010.

The credit facility provided a total of $285 million in financing, including $150 million in term loans, a $60 million revolving credit facility, and a $75 million funded letter-of-credit facility, Sun says.

At the end of the third quarter, Sun owed about $140 million in term loan debt and had used the revolving credit facility to back $400,000 in letters of credit.

Clinton Group Inc., New York, an investment manager, suggested earlier this week that Sun stock is undervalued and that managers ought to consider selling the company.

“The unexpected cuts to Medicare reimbursement rates have severely impacted the company and its peers,” Joseph De Perio wrote on behalf of Clinton Group. “And while we believe that management responded briskly with a risk mitigation plan that has been effectively communicated to investors, the stock price continues to languish and fails to reflect the true value of Sun’s operations.”

Sun Chairman William Mathies says the company has forwarded the Clinton Group letter to the Sun board.

“Our board of directors and management are committed to exploring all reasonable alternatives to increase stockholder value, and in that context, will review your suggestions and give them appropriate consideration,” Mathies says in a letter responding to the Clinton Group letter.

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