Westworld Plans More Changes in Ailing Health Firm
Still bedeviled by the depressed economies of America’s rural regions and lower Medicare payments, officials of Westworld Community Healthcare Inc. said Tuesday that they will further restructure their battered company before the end of the year.
The El Toro-based company said the latest round of restructuring involves both the replacement of expensive long-term debt with some other security, as well as the selling-off or closing of unprofitable hospitals and clinics.
Westworld also said it plans to delay a $2.5-million interest payment, due Dec. 1, on $35 million in subordinated debentures sold a year ago. Glenn Caster, a Westworld spokesman, said the company is capable of making the payment. But, he said, it is being deferred while Westworld explores a plan to reduce interest expenses by trading new securities for its $65 million in long-term debt. Caster said Westworld has a 30-day grace period to make the December interest payment.
The long-term debt--financed by so-called junk bonds underwritten by Drexel Burnam Lambert Inc.--consists of $30 million of 14.5% subordinated notes and $35 million of 14.375% subordinated debentures.
In a prepared statement released Tuesday, Michael Dunn, Westworld’s chairman, president and chief executive officer, said the company is in the process of pulling out of some of the communities it now serves and expects to “take similar actions in several other locations in the near future.”
Westworld has attempted to carve a niche for itself as a provider of integrated rural health care services, including clinics, ambulance companies, pharmacies and the like, all built around a local hospital.
It operates 36 hospitals and 23 alcoholism and pain-treatment centers in 15 states.
“The rural concept looked like a good idea at the time, but it’s not proven to be any more profitable than any other area in health care,” said Steven Reid, an analyst with the Los Angeles brokerage of Wedbush, Noble, Cooke Inc.
Citing “negotiations” with possible buyers and local authorities, Caster refused to identify most of the facilities to be closed or sold, other than to say that they include five acute-care hospitals and about 18 clinics. More than 400 employees may be affected, he said.
Caster confirmed, however, that four Westworld clinics now for sale are in Webb City, Mo., where the company earlier this year ceased managing the city’s 50-bed hospital after a stormy three-year relationship with local officials.
Help Cash Flow
The divestitures will result in a “substantial” write-down against earnings during the fourth quarter, but the move is expected to improve cash flow by early 1987, Caster said.
Westworld’s interest expenses, including payments on $49.7 million in bank debt, totaled $120.6 million during the first nine months of 1986, an increase of more than 180% contrasted with interest payments for the first nine months of 1985.
Westworld posted a $1.8-million net loss for the nine months ended Sept. 30, contrasted with net earnings of $2.7 million a year earlier. Caster refused to say what kind of annual performance company officials are projecting but noted that “none of the analysts is predicting a profit for the year.”
Westworld stock hit a new all-time low of $1.625 a share Tuesday before rebounding slightly to close at $1.875 a share, down 12.5 cents for the day in over-the-counter trading.
