NEW YORK, May 16 /PRNewswire/ -- The recent announcement by Omega
Healthcare Investors Inc. (NYSE: OHI) regarding a potential infusion of up to
$200 million convertible preferred stock by a private investment group has
positive implications for Omega's ability to meet its July 2000 debt
maturities according to Duff & Phelps Credit Rating Co. (DCR). Omega expects
to file a proxy statement regarding this transaction by the end of this month,
and be in a position to seek shareholder approval by the end of June 2000.
DCR currently rates Omega's senior unsecured notes 'B+' (Single-B-Plus) and
it's convertible subordinated debt 'B' (Single-B). Omega's cumulative
preferred stock is rated 'B-' (Single-B-Minus), and all ratings remain on
Rating Watch--Down. Subject to shareholder approval of the preferred stock
offering and the closing of a revised bank credit agreement, DCR will review
its current ratings and Rating Watch designation with the potential for
improvement.
Notwithstanding operator difficulties discussed below, completion of the
private placement and renewal of the bank line will significantly improve
Omega's liquidity and ability to meet near-term debt maturities, which include
$81 million exchange notes due July 2000 and $48.4 million subordinated
convertible notes due January 1, 2001. Dallas-based investment group Explorer
Holdings, L.P. has committed to fund an initial $100 million in convertible
preferred shares with a minimum 10 percent yield or higher determined on an
as-converted basis (currently 16 percent based on the common stock dividend).
These securities will rank in parity with outstanding preferred stock in
distribution and liquidation preference. Explorer has also committed another
$50 million in convertible preferred stock through February 2000 if required
by Omega to meet liquidity needs. Under the same agreement, a final $50
million could be available through June 2002 for purposes of acquiring new
real estate assets. Further liquidity is provided via the renewal of Omega's
$175 million secured revolving credit facility through December 2002. Upon
closing, Omega will have approximately $45 million available under this bank
line. Short-term liquidity sources are augmented by planned asset sale
proceeds and the temporary suspension of the company's 2Q '00 common dividend.
Approximately 90 percent of Omega's equity and mortgage investments are in
skilled nursing facilities, a sector that has seen widespread financial
deterioration resulting from the January 1, 1999 implementation of lower
Medicare reimbursement rates (Medicare PPS) mandated under the Balanced Budget
Act of 1997 (BBA '97). Currently, four of Omega's largest operators have
filed for bankruptcy protection: Sun Healthcare (24.9 percent of Omega
investments), Integrated Health Services (15.3 percent), Raintree Healthcare
(7.9 percent) and Mariner Post Acute (5.6 percent). Additionally, Advocat,
Inc. (10.7 percent) is under severe financial stress and has reduced its Omega
lease payments.
As a result of the aforementioned operator difficulties, Omega has
sustained considerable impairment to cash flow and coverage capacity.
Interest and fixed charge coverage ratios declined to 2.2 times and 1.8 times
respectively, through 1Q '00. A total of 18 properties have been taken back
from Raintree while Omega has contracted with a new operator to manage the
properties and had to infuse working capital. Omega is currently not
receiving interest payments on its $58.8MM in mortgages to Mariner, which have
been stayed in bankruptcy. IHS has resumed payment of interest to Omega on
its $55 million in mortgages, although it is not obligated to do so under
bankruptcy and it is unclear whether payments will continue. Additionally,
Omega is expected to restructure its Advocat leases, effectively reducing cash
flow from these properties.
SOURCE Duff & Phelps Credit Rating Co.
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Related links:
http://www.dcrco.com
CONTACT:
Ethan J. Parks, 212-908-0329, or
parks@dcrco.com, or Scott J. O'Shea, 212-908-0213, or
oshea@dcrco.com, both of Duff & Phelps Credit Rating Co.
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