Health Firm Could Face Bankruptcy

Loss-ridden Comprehensive Care Corp. could be forced into bankruptcy unless investors accept a company proposal to partially repay $9.5 million in overdue debt, independent auditors report.

Auditors Ernst & Young highlighted the precariousness of the Newport Beach-based health care company’s financial position this week in a report accompanying the company’s financial statement for the fiscal year ended May 31. The firm said there’s “substantial doubt that the company can continue as a going concern.”

The company, which has lost more than $50 million in the last five years, failed to pay interest on the $9.5 million in long-term debt last fall, prompting investors to demand immediate payment. The company has since offered to buy back the bonds with a combination of cash and stock valued at about 70% of the bond’s face value.

Investment advisers said bondholders will probably approve the exchange, assuming the company sticks with terms previously negotiated with investors.

Jay H. Lustig, a Santa Monica money manager whose clients own about 40% of the outstanding bonds, predicted that the agreement will be approved if the company can come up with the cash. “To me, the only fly in the ointment is if they couldn’t raise the cash to pay the bondholders off,” he said.

Comprehensive Care fell on hard times when it diversified from its basic business of providing treatment programs in mental health and invested in a network of hospitals, said Chriss Street, its chairman and chief executive.

The company is now trying to raise capital and refocus itself by selling the hospitals and emphasizing treatment programs again, Street said.