Extendicare Sells More to Pay Down Debt
Extendicare Health Services, Inc., the wholly owned U.S. subsidiary of Extendicare Inc., sold six more nursing homes last week in its ongoing effort to pay down debt.
In a transaction that closed December 30, Extendicare sold its shares of Florida 6 Health Care Facilities, Inc. to Tandem Health Care, Inc. of Moon Township, Pennsylvania, for $40.5 million. The transaction was structured as a share sale, because the six Florida facilities were among those owned by Arbor Health Care Company when Extendicare bought Arbor in the fall of 1997. "Our purchase of Arbor was a share purchase," Joy Calkin, PhD, told Longtermcareprovider.com.
"What we did was we kept the Arbor name but sold the structure, and we pulled out all of the other Arbor buildings except those six and sold that entity to the buyer," explained Calkin, deputy chairman and CEO of Extendicare Inc. "We didn't need the entity any longer, since the companies are now fully integrated. Also, there will be tax consequences that we think will be positive."
Net proceeds and tax benefits from the sale will be used to pay down debt. "Our job is to reduce our debt/equity ratio," said Calkin. "We started, with the Arbor purchase, with a ratio in the sevens. I'd be happy to get it down to the twos—1.5 is where we're headed."
The company, which operates 298 facilities in the U.S. and Canada and provides medical specialty services in the U.S. and home health care and rehabilitative therapy services in Canada, has sold two types of assets: non-core businesses and under-performing facilities. Over the past year, it has sold its home health business, its medical specialty business, its UK operations (one hospital and 14 nursing homes), and its pharmacy unit, which Omnicare bought last March. "We were fortunate in that; I think we probably hit the end of the bull market in pharmacy," noted Calkin.
In assessing which homes to sell, said Calkin, the company considers "a list of reasons. Some have to do with geography, some with the competitive market in the immediate area, some with the cost of litigation in the area, some with the cost of manpower. Florida is an obvious target because of litigation costs.
"The six facilities we just sold in Florida, we got, I think, a very decent price for," she added.
In the long run, Calkin claimed, "We're trying to position ourselves for growth. We've been around for about 30 years now in Canada, and for some years in the U.S. We believe that the care of the fragile elderly and those who need support in their living is what we've been created to do. Obviously, one gets to think, from time to time, what's that going to look like in the future.
"I think we need to look at the options," she added. "Some of the questions one would ask are: is the government signaling us, by means of the Balanced Budget Act, that it's not willing to share responsibility for the care of the elderly? When it costs me more to rent a hotel room to lobby Florida about court reform than we care to pay for the care of someone with Alzheimer's, does that make sense?"
With the help of this sale, the company believes it remains in compliance with the financial covenants in its bank credit facilities and other debt obligations, according to a press release issued by the corporation last week.