PacifiCare Drops Plan to Refinance

PacifiCare Health Systems Inc., the biggest U.S. operator of Medicare health plans, said Friday that it abandoned plans to refinance $800 million in debt after a junk-bond sale failed because of investor concern over rising costs.

PacifiCare wanted to sell the bonds and arrange a $400-million loan to refinance the bank debt that matures in January, along with $100 million in senior notes. The plan was contingent upon the sale of $600 million in junk bonds, which Morgan Stanley Dean Witter & Co. wasn’t able to complete, bankers familiar with the issue said this week.

The Santa Ana company’s stock, which slumped 27% this week, Friday fell $1.59 to $12.31 on Nasdaq.

PacifiCare will “explore other financing alternatives,” including seeking an extension of its credit, said Suzanne Shirley, vice president of investor relations.

“We’ve got six months left to work out an alternative so we’re fine right now,” she said.

The company has about $130 million in cash on hand, Shirley said.

Bear Stearns analyst John F. Rex said he expected PacifiCare’s lenders to grant an extension, although at a higher interest rate. “I don’t think they have a lot of choice,” he said.

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Bloomberg News was used in compiling this report.