Prospect Medical Holdings Receives Notices of Non-Monetary Default Under Credit Agreements
25 Mars 2009 - 9:21PM
Business Wire
Prospect Medical Holdings, Inc. (NYSE Amex: PZZ)
(�Prospect� or �the Company�), which owns and operates four
community-based hospitals and manages the medical care of
approximately 190,000 HMO enrollees in southern California, today
announced that it has received Notices of non-monetary Default on
its first and second lien credit agreements (the �Notices�), under
which Prospect currently owes approximately $139 million (comprised
of $136 million in original debt and $3 million in added PIK fees).
The Notices contend that Prospect violated a requirement associated
with the May 15, 2008 Credit Agreement Amendments to divest certain
operations by December 31, 2008, which date was subsequently
extended to March 17, 2009. The Notices declare, among other
things, the lenders� right to terminate the loans, exercise any and
all remedies available and immediately begin assessing default
interest rates.
Based on all of the facts, including numerous discussions with
the lenders, Prospect vehemently disputes the existence of any
event of default. Prospect has made, on time and in full, all of
its required principal and interest payments since the inception of
the loans, and anticipates continuing to do so for the remaining
duration of the loans.
Since the Credit Agreements were amended effective May 15, 2008,
Prospect has been in full compliance with all financial and other
loan covenants, has significantly exceeded all of its performance
projections and has successfully undertaken a wide variety of
operational initiatives that have substantially enhanced the value
and performance of the Company, all during a very difficult
economic climate. Some of these initiatives were outlined in the
Company�s press release dated November 13, 2008. At the time that
the Company entered into the May 15, 2008 Credit Agreement
Amendments, the Company was underperforming and the lenders
assessed substantial penalties and fees and instituted very
significant interest rate increases. Based on that prior
underperformance, the Company�s maximum Leverage Ratio covenant was
set as high as 7.40 to 1, and the Minimum Trailing Twelve Month
(TTM) EBITDA covenant was set as low as $16.75 million. As reported
in the Company�s Earnings Release for the quarter ended December
31, 2008, the Company reported TTM Adjusted EBITDA of $43.7 million
and a Net Debt: Adjusted TTM EBITDA Ratio of 2.51. The Company
expects to report an even higher TTM Adjusted EBITDA and an even
lower Net Debt: Adjusted TTM EBITDA Ratio when it reports results
for the current quarter.
The Company has formally engaged an investment banking firm to
undertake a refinancing of the current debt. Notwithstanding
current market conditions, based on the Company�s very strong,
sustained performance and cash flow generation, the Company firmly
believes that it will be able to complete a refinancing - on
substantially more attractive terms and with a capital partner more
aligned with, and supportive of, the Company�s excellent
performance and disciplined future expansion plans.
Prospect is currently negotiating with its lenders, and is
hopeful that an agreement between the parties can be reached,
although there can be no assurances.
CONFERENCE CALL
Management will host a conference call on Wednesday, March 25,
2009 at 5:00 pm ET / 2:00 pm PT, to discuss this development.
Interested parties may participate in the call by dialing (866)
267-2584 (Domestic) or (706) 634-4739 (International) approximately
10 minutes before the call is scheduled to begin and ask to be
connected to the Prospect Medical Holdings conference call.
The conference call will be broadcast live over the internet at
the following link:
http://investor.shareholder.com/media/eventdetail.cfm?eventid=67145&CompanyID=PROSPECT&e=1&mediaKey=FD1088B6F9BDB79FFAEA6E426404E661
To listen to the live call on the internet, go to the website at
least 15 minutes early to register, download and install any
necessary audio software. If you are unable to participate in the
live call, the conference call will be archived and can be accessed
for approximately 30 days.
ABOUT PROSPECT MEDICAL
HOLDINGS
Prospect Medical Holdings operates four community-based
hospitals in the greater Los Angeles area and manages the medical
care of individuals enrolled in HMO plans in Southern California,
through a network of approximately 14,000 specialist and primary
care physicians.
This press release contains forward-looking statements.
Additional written or oral forward-looking statements may be made
by Prospect from time to time, in filings with the Securities and
Exchange Commission, or otherwise. Statements contained herein that
are not historical facts are forward-looking statements. Investors
are cautioned that forward-looking statements, including the
statements regarding anticipated or expected results, involve risks
and uncertainties which may affect the Company's business and
prospects, including those outlined in Prospect's Form 10-K filed
on December 29, 2008, as well as risks and uncertainties arising
from Prospect's acquisition of Alta and ProMed, and the debt
incurred by Prospect in connection with those acquisitions. Any
forward-looking statements contained in this press release
represent our estimates only as of the date hereof, or as of such
earlier dates as are indicated, and should not be relied upon as
representing our estimates as of any subsequent date. While we may
elect to update forward-looking statements at some point in the
future, we specifically disclaim any obligation to do so, even if
our estimates change.
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