Homedco Receives $40-Million Credit Line
Two weeks after completing a $64-million initial public stock offering, Homedco Group Inc. said Wednesday that it has received a $40-million credit line from Wells Fargo Bank that will enable the home health-care services company to restructure its debt.
The Fountain Valley-based firm, which has operations in 35 states, paid off an existing $17-million loan from Heller Financial Inc., replacing it with the lower-interest credit line from Wells Fargo.
“Basically, it lowers our cost of doing business,” said Lawrence Smallen, Homedco’s chief financial officer. “We have less debt, lower interest costs and more money available to grow the business or make possible acquisitions.”
Homedco supplies medical equipment and provides home respiratory therapy and home infusion therapy, which is the intravenous supply of nutrients and medicine, including chemotherapy. The company also trains patients and care givers in the home, monitors patient compliance and reports to physicians.
Smallen said Homedco’s new loan agreement is for payment of interest at the prime rate plus three-quarters of a percentage point. He said the previous rate varied from prime plus half a point to prime plus four points.
The company’s debt stemmed from the 1987 formation of Homedco, when existing management and an investor group bought the Orange-based National Medical Homecare subsidiary of National Medical Enterprises Inc. in a leveraged buyout.
Because of the debt service and other costs related to the formation of the company, it had posted losses every year since 1987. That changed in October. For the six months ending Dec. 31, which are the most recent figures available, Homedco reported $1.7 million in profit on revenue of $103 million.
Smallen attributed the profit to an increase in revenue and said the company should continue to be profitable. Its revenue for the year ended Sept. 30, 1990, was $194 million, compared to $168 million the year before.
Smallen said the company decided to go public to improve its cash position. “We were highly leveraged and were growing fairly rapidly,” he said. “This allowed us to lower interest costs and, therefore, improve operating margins.”
The company’s stock was made available to the public May 1 at $15 a share. Investors bought 4.255 million shares for a total of $63.8 million, Homedco said. Shares of Homedco stock closed Wednesday at $18.25, up 75 cents.
In its prospectus, Homedco said the home health-care market is growing dramatically as home treatment becomes less expensive compared to hospital treatment, as the population ages and as medical-technology advances allow for more sophisticated home care. In 1990, home health care was a $12-billion industry.
