Magellan Might Face Cash Crunch

By Staff Writer

September 30, 2002 at 08:00 PM

Share & Print

NU Online News Service, Sept. 30, 1:52 p.m. – Magellan Health Services Inc., Columbia, Md., says it believes it may be violating at least one of the financial covenants in a credit agreement with its bank lenders.

If Magellan has violated the credit agreement, the lenders will have the right to demand that Magellan repay its loans earlier than originally scheduled, Magellan says.

Magellan, which manages mental health care and substance abuse treatment for one-quarter of all U.S. residents, ends its current fiscal year today. Financial statements for the fiscal year, aren't due until Jan. 7, 2003, but Magellan says the statements will probably show it is out of compliance with the credit agreements.

Magellan says it will try to get waivers from its lenders and look for ways to reduce its debt. But, if the lenders insist on early repayment of loans, Magellan might not have enough cash to make the payments or support its operations, the company says.

Magellan says that it originally was trying to refinance its debt but that it now has hired Gleacher Partners L.L.C., New York, to either help it reduce its overall debt or help it engage in a "comprehensive capital restructuring."

Magellan also reports that it is continuing to negotiate with Aetna Inc., Hartford, its biggest customer, over the Jan. 1, 2004, expiration of the Aetna contract, and that two board members, Darla Moore and Jeffrey Sonnenfeld, have resigned.

NOT FOR REPRINT