Maxicare Takes Step Toward Reorganization
Maxicare Health Plans, which is operating under federal Chapter 11 bankruptcy protection, has proposed a plan of reorganization under which creditors would receive various amounts of cash, debt securities and equity in the firm.
The Los Angeles-based health maintenance organization declined Wednesday to discuss details of the proposal, which it said has been presented to its creditors’ committee for a response. The Maxicare management proposal is the basis for negotiating a formal plan to be submitted to the U.S. Bankruptcy Court in Santa Ana for approval, a company spokesman said. The company said it hopes to present a plan for court approval in October.
Maxicare said its proposal calls for “favored treatment of the claims of health-care providers.” Creditors covered by the proposal include holders of some $295 million Maxicare bonds at the time of the March 16 bankruptcy filing, banks that were owed some $150 million and health-care providers, who are primarily hospitals and medical groups owed millions in debts incurred prior to bankruptcy filing. Hospitals among the company’s creditors include Pomona Valley Community Hospital, Cedar Sinai Medical Center and the University of California hospitals.
After the bankruptcy filing, Maxicare agreed to maintain a special escrow account to pay current debts owed to some providers.
Representatives of the creditors committee couldn’t be reached for comment Wednesday.
Details of the plan, such as what percentage of creditors’ claims would be satisfied in cash, weren’t available. But the proposal includes some elements anticipated by analysts. For example, the company was expected to attempt to satisfy creditors with a package including new debt and equity, which would dilute the holdings of current shareholders. At the time of its bankruptcy filing, Maxicare was discussing a reorganization to satisfy bondholders and banks that had not received several interest payments as the company’s financial plight worsened after two years of losses.
“Management’s proposed plan aims to fairly treat the interests of all parties,” Maxicare Chairman and Chief Executive Peter J. Ratican said in a prepared statement. The plan is also designed “to enable Maxicare to emerge from Chapter 11 as a financially strong and stable competitor,” he added.
The position of some Maxicare competitors has certainly strengthened since the bankruptcy filing, said Larry Selwitz, an analyst with Cruttenden & Co. Talks with other HMOs suggest that Pacificare of Cypress and Fountain Valley-based FHP Inc. have “picked up quite a few Maxicare members in the Southern California area,” he said. In May, Maxicare said its membership was about 625,000 members, down from about 900,000 at the time of the filing.
Maxicare had some 2 million members in 1987 but began selling and closing down some plans last year because of its substantial losses. The company also has been forced to close or sell some plans since the bankruptcy filing. It now operates plans in California, Illinois, Indiana, Louisiana, North Carolina, South Carolina and Wisconsin.