Gentiva Modifies Credit Facility - Analyst Blog
March 07 2012 - 1:30PM
Zacks
On Tuesday, Gentiva Health Services Inc. (GTIV)
announced an amendment to its senior secured credit agreement to
make the financial covenants more flexible for the remaining period
of the credit facility. The amendment consists of alteration of the
definition of consolidated EBITDA (earnings before interest, taxes,
depreciation and amortization) in the credit agreement.
Consequently, all expenses related to Gentiva’s cost realignment
initiative, certain non-recurring cash charges and legal
settlements will be added back during the calculation of
consolidated EBITDA. Additionally, the maximum limit for the
consolidated leverage ratio has been raised to 6.25:1.00 for the
period from January 2012 to September 2014 and 5.75:1.00
subsequently. The previous limit was 4.50:1.00 till September 2012,
3.75:1.00 from October 2012 to September 2013 and 3.00:1.00 beyond
that.
Further, the minimum interest coverage ratio requirement has
been relaxed to 2.00:1.00 for the period from January 2012 to June
2013, 1.75:1.00 from July 2013 to June 2014 and 2.00:1.00 from July
2014 onwards. Moreover, the definition of consolidated interest
charges has been modified to exclude non-cash interest charges,
which were previously included.
The amendment also hiked the interest rates on the term loans
taken under the credit facility by 1.75% per annum. Thus, the new
rates applicable on the Eurodollar term loans A and B are 6.25% and
6.50%, respectively.
Additionally, Gentiva is now allowed to make discounted
prepayments of outstanding term loans through a Dutch auction
process. However, the company will have to pay various fees
relating to the amendment, one of them being a consent fee of about
0.50% of term loans and revolving credit obligations under the
credit agreement. This consent fee will be paid to all lenders who
give their consent to the amendment.
Gentiva also repaid $50 million of its principal outstanding
under term loans A and B on a pro rata basis and downsized its
revolving credit facility to $110 million from $125 million. The
company is implementing a two-pronged strategy to increase the
flexibility of its financial covenants over the next few years in
an effort to better reflect the changed reimbursement environment.
The amendment of the credit facility is the second part of the
strategy.
Gentiva is a leading national provider of comprehensive home
health services and competes with organizations like
Amedisys Inc. (AMED) and Lincare Holdings
Inc. (LNCR).
Shares of Gentiva currently carry a Zacks #2 Rank, implying a
short-term Buy rating. Considering the fundamentals, we maintain
our long-term Neutral recommendation on the shares.
AMEDISYS INC (AMED): Free Stock Analysis Report
GENTIVA HEALTH (GTIV): Free Stock Analysis Report
LINCARE HLDGS (LNCR): Free Stock Analysis Report
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