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Non-Tech : Auric Goldfinger's Short List -- Ignore unavailable to you. Want to Upgrade?

To: Sir Auric Goldfinger who wrote (11784)	6/18/2003 11:07:43 AM
From: Imran	Respond to of 19428

Hi guys. Just wanted to share some DD with u guys on SUHG. comments appreciated. Sun Healthcare is one of the U.S.A.’s largest healthcare providers operating in the “high-quality” therapy, pharmaceutical, home care, and ancillary services segments of the healthcare industry. The company emerged from Chapter 11 bankruptcy proceedings on February 28, 2002. Although it reorganized its business structure and emerged a leaner company, Sun has returned to a severely distressed state. From a low of $0.11 in March 2003, Sun’s share price has surged more than 1400% to its $1.68 close on June 17, 2003. Much of the gains have been made since May 21, 2003 following news that the company has reached a forbearance agreement with its creditors (see below). However, it is unlikely that the company will generate sufficient cash flow or divest sufficient assets to meet its financial obligations for the year. To conserve cash flow, the company is withholding paying its mortgage and employee compensation, amongst other things. This is a typical signal of an imminent Chapter 11 bankruptcy protection filing. All the information below is from the latest SEC quarterly filing (10-Q) of 5/14/2003 and news releases. Below are some financial highlights: • Cash $28m • Accounts receivables $64m • Accrued compensation and benefits $70m • Current portion of Long Term Debt $110m (represents approximately 60% of outstanding debt) • Contractual obligations for 2003 including debt, leases, and mortgages $265m • Operating Cash Flows for quarter ended March 2003 $26m (one month March OCF of $13m, 2 month OCF for Jan-Feb -$23.7m) The company’s restructuring activities are expected to last 9-12 months, with no assurance of it averting Chapter 11: “Our restructuring efforts are likely to require at least nine to 12 months to complete. We will need additional liquidity during the next few months and may be required to sell additional assets during that period in order to have sufficient liquidity to operate our business as we complete the restructuring….It is likely that if we are unable to complete such sales or otherwise obtain additional funding, we would commence bankruptcy proceedings.” The company is actively withholding payments to conduct operations in order to conserve much needed cash. This is a typical signal of an imminent Chapter 11 filing as the company will leave such outstanding obligations to be settled in bankruptcy court as well as use this excess/conserved cash to finance itself under Chapter 11. “As of April 30, 2003, we had withheld payment of approximately $26.0 million in accrued rent and mortgage payments with respect to those facilities. In addition, we intend to continue withholding certain rent and mortgage payments until we complete the transition of each affected facility to new operators. We cannot predict the extent to which landlords not receiving rent will seek to assert leasehold or other damages during the restructuring period. If the landlords aggressively pursue and obtain back rent and other damages, we will likely be required to commence bankruptcy proceedings prior to the completion of our restructuring.” The company is currently negotiating with its various landlords. However, even if the leases and mortgages are reduced, the company still faces an extremely difficult operating environment: “Although we have had encouraging discussions and are making progress with many landlords from whom we are seeking to obtain rent concessions or facility lease terminations, and have reached agreements in principle or final agreements with several of our landlords, no assurance can be given that we will be successful in our restructuring efforts….Unless we are able to generate substantial cash flow from operations and/or raise cash from asset sales or additional financing, our current available cash and borrowing capacity will be insufficient to fund our ongoing operations. Even if our restructuring allows us to create a sustainable positive cash flow from our operations, a bankruptcy filing may, nonetheless, be required to restructure outstanding obligations and claims against us. Under any circumstance, it is not certain whether we can create or sustain any value for our common stock.” On May 29, 2003, the company stated that a foreclosure notice from one of its creditors was cancelled via a forbearance agreement between the company and the party. This will allow the company to negotiate further with other creditors and restructure its activities. However, this does not mean that the outstanding balance is forgiven. On June 17, 2003, the company sold its SunScript subsidiary to Omnicare Inc. for an amount upto $90 million. The deal comprises of $75 million in cash and up to an additional $15 million post-closing (3Q 2003) and subject to reduction. SunScript will provide $180 million in revenues to Omnicare. This divestiture shows that Sun is selling assets that are lucrative to other buyers (and itself) in order to meet current obligations. If this trend continues, Sun may be left with little or no profitable businesses.