Provider IHS unable to pay bond interest; Integrated Health skips $7.7 million in debt obligation


Integrated Health Services Inc. announced yesterday that it will not make a required interest payment on $150 million in bonds, the latest sign that the Sparks-based health-services provider is facing a severe liquidity crisis.

IHS' decision to skip the $7.7 million in interest payments that was due yesterday comes on the heels of two consecutive quarterly losses totaling more than $10 million, significant layoffs and a sharp drop in the value of its common stock.

The company's stock closed yesterday at 31.25 cents a share, up 3.125 cents, before the company's announcement. In April last year, IHS' stock traded for $39.375.

Although the company did not list reasons for failing to meet its interest payment, it has previously acknowledged suffering under new Medicare payment regulations.

IHS officials did not respond to telephone calls yesterday.

"This shows that the effects from the Medicare regulations are not only continuing, but it looks as if they're worsening to the point where they can't meet their outside obligations," said Robert M. Mains, a health care industry analyst at Advest Inc., an Albany, N.Y., investment company.

"What they're talking about is potentially being in default on $150 million in bonds."

IHS said that under the terms of the senior subordinated notes on which the interest was due, it has a 30-day grace period before a default on its debt would occur.

The company could face having to pay the full value of the $150 million worth of notes if the interest payment is not made within the grace period.

The notes, which mature in 2006, are general unsecured debt and are subordinate to the company's senior bank debt and lease obligations.

IHS said that despite the failure to make the interest payment, it is continuing to honor its obligations to vendors.

IHS, which operates more than 1,600 post-acute service locations in 48 states, is the latest health care provider to suffer under the new Medicare regulations. Sun Healthcare Group Inc. and Vencor Inc. sought U.S. Bankruptcy Court protection this year stemming from the new rules.

"If [IHS] doesn't get greater operating results or some relief from Congress, it looks to me like they're going to be in a pretty tenuous situation," Mains said.

Mains said he is uncertain whether any congressional intervention will bring enough relief for health-care companies such as IHS.

In an effort to combat the financial effects of the new federal rules and to sort out its balance sheet, IHS has retained Warburg Dillon Read LLC as a financial adviser and accounting giant KPMG LLP as a consultant.

IHS said the two firms are working to "analyze strategic alternatives," which could include restructuring the company's debt, selling assets and raising additional capital.

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