The following mentions the rediculous restructuring is good for bondholders and holders of preferred,, what it fails to mention is just how great a job of screing the holder of common,,,
It also explains mgmts misleading (read LIES) on restructuring by splitting the company into 2. I'll hold until the lawyers show up at least,,, it sure would not be disappointing to see them sued,,, granted only the lawyers get rich and most is insured but anything to keep this BOD and mgmt from going fwd to screw others,,,
NEW YORK, Feb 1, 2000 /PRNewswire via COMTEX/ -- The Meditrust
Companies (NYSE: MT) announcement that it intends to accelerate its
program of health care asset sales is positive news for bondholders and
preferred stock investors, according to Duff & Phelps Credit Rating Co.
(DCR). "Meditrust has made steady progress in reducing debt through
assets sales," noted Scott O'Shea, DCR REIT Group Vice President. "Our
view of Friday's announcement is that such sales continue to be a
viable option for the company, and that management intends to be
proactive in raising cash ahead of its still significant 2000 and 2001
debt maturities." DCR currently rates Meditrust's senior notes 'BB-'
(Double-B-Minus) and its preferred stock 'B' (Single-B). DCR's Negative
Rating Outlook reflects uncertainties associated with asset sale
programs in general, combined with ongoing pressure on nursing home
operators and landlords under revised Medicare reimbursement
procedures.
The Meditrust announcement calls for an orderly liquidation of its $2.2
billion (book value) health care portfolio, and a corresponding
reduction in the company's $2.6 billion of total debt (of which
approximately $1.6 billion matures in 2000 and 2001). The announcement
also noted that Meditrust will suspend its common dividend payments for
most of 2000, then declare the minimum dividend in December needed to
maintain its REIT status. Preferred dividends on the company's $175
million 9 percent series A cumulative preferred stock will continue to
be paid quarterly. Depending on the pace and extent of debt reduction,
DCR believes the Meditrust announcement could have positive long-term
rating implications, but will reserve judgement until actual benefits
begin to be realized.
The Friday announcement also signals a change in Meditrust's
restructuring strategy. Previously, the company had intended to split
its lodging ($2.65 billion, or 51 percent, of September 1999 gross real
estate investments) and health care ($2.58 billion, 49 percent)
divisions into separate public companies. Through liquidation of the
health care portfolio, the La Quinta hotel chain will be left as the
sole operating division. Depending on the amount of debt reduction, La
Quinta could ultimately benefit from an improved financial profile and
better access to capital for future growth. Meditrust's news release
also noted that it intends to resume investment in its lodging segment,
although specifics as to amounts, timing and the form of reinvestment
were not disclosed.
In DCR's view, Meditrust's decision to liquidate the health care
portfolio also reflects the stress that has impacted skilled nursing
facilities (59 percent of health care assets), and potentially
long-term investment values. Meditrust's second largest tenant is Sun
Healthcare (approximately 17 percent of health care investments), an
operator that filed for bankruptcy in 1999. While Sun remains current
on its 38 leased properties (payments on four mortgages have been
stayed), Meditrust nonetheless remains exposed to a potential roll-down
in lease rates in any final restructuring plan. Meditrust also retains
additional operator concentration with a $595 million investment
(approximately 24 percent of health care assets) in properties operated
by Life Care Centers of America. DCR believes that issues regarding
operator strength will continue to affect the health care REIT sector
in 2000, although many private operators seem to be adjusting well to
the new environment.
To achieve Meditrust's desired level of asset sales, a key question is
the ability of health care operators and third-party investors to gain
access to private capital sources such as banks and conventional
mortgage lenders. A closely related issue is what level of returns
and/or debt service coverage these investors will require, and whether
the resulting valuations would require a discount from Meditrust's
current book values. Despite these uncertainties, Meditrust has so far
realized more than $625 million from the sale of health care properties
and mortgage loan repayments, including $146 million in the fourth
quarter of 1999. DCR notes, however, that such sales may become more
difficult during 2000 as REITs and operators undergoing bankruptcy
restructuring begin to place a larger amount of properties on the
market.
Assuming that Meditrust is successful in accelerating its pace of debt
reduction, this program could produce stronger interest coverage levels
over the course of 2000. Interest and fixed-charge coverage were 2.4
times and 2.1 times, respectively, in both second quarter 1999 and
third quarter 1999 (Meditrust has not yet announced its yearend
results), indicating adequate capacity to carry the current level of
debt and preferred stock. While health care operator difficulties and
weakness in many of La Quinta's lodging markets could negatively affect
consolidated EBITDA and offset some of the benefits of lower interest
expense, it is more likely at this point that coverage will trend
upward, in DCR's opinion.
Meditrust's near-term debt maturities include $42.3 million senior
convertible notes due July 1, 2000, and $125 million senior notes due
July 26, 2000. Based on current availability of approximately $140
million under Meditrust's bank revolver, reasonable prospects for
additional asset sales, and retained cash flow from operations, the
company should have adequate liquidity to meet these maturities. Debt
maturities in 2001 are much more significant, however, and include a
$500 million term loan, $850 million revolving credit agreement
(roughly $700 million drawn), and $219.5 million of public senior debt.
In total, the 2001 maturities account for more than 50 percent of
Meditrust's total borrowings and result in significant payment risk.
However, the fact that most of Meditrust's near-term maturities consist
of bank debt provides potential flexibility. As Meditrust has
demonstrated the ability to steadily reduce bank outstanding through
asset sales and maintain coverage in the 2 times range, it is DCR's
opinion that the bank group would ultimately extend their commitments
if the alternative was to force a payment default (and acceleration) on
the company's public debt.
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