Maxicare Warns Bond Payments May Be Suspended

Maxicare Health Plans, after managing to make a $7.3-million interest payment on its bonds, on Monday warned that it probably won’t be able to repeat the feat until it gets its financial house in better shape.

Last week, the Los Angeles-based company hired the investment banking firm of Goldman, Sachs & Co. to help devise a recapitalization plan, which some analysts expect to include a swap of stock for bonds.

Maxicare is burdened with $474 million of debt, including a $162-million bank loan that is being restructured with a group of lenders led by Bankers Trust, according to Maxicare Vice President Tobi Nyberg. Most of the company’s debt--about $295 million--is held by four groups of bondholders. But Nyberg denied a published report that the company has settled on a plan to execute a $310-million stock-for-bonds program.

Rae Alperstein, a health-care analyst with Bateman Eichler, Hill Richards, said she believes that it is “premature” to say Maxicare can avoid bankruptcy. “If they sell enough assets, they could be all right,” Alperstein said, but she questioned whether the company has been holding out for prices higher than the typical $200 per enrollee that some buyers have been willing to pay.

The company has not disclosed its gains from its most recent asset sales, which occurred on Sept. 30, Nyberg said. At that time, Maxicare sold company-owned medical facilities in Philadelphia and Dallas and four health maintenance organizations in Michigan, Maryland, Arkansas and Pennsylvania. The sales reduced Maxicare’s membership to 1.4 million enrollees, down from a peak of 2.3 million in 1987, Nyberg said.

On Monday, a University of California official confirmed that the nine-campus, five-hospital system will soon drop Maxicare as a health-care provider for its employees.

Acquisitions Hurt

“We’re not going to renew their contract for 1989,” said Michele French, manager of planning, health, welfare and cafeteria benefits. “We looked at a lot of things: at their financial situation, their offerings and their rates.” The university system has about 1,300 employees using the Maxicare plan in Northern California.

Founded in 1973, Maxicare operated as a nonprofit corporation until the 1980s. It branched out of California in 1982, eventually adding plans in as many as 20 states. Its current woes can be traced to the 1986 acquisitions of money-losing HealthAmerica Corp. and HealthCare USA, Alperstein said. The company needs a plan of action “that would make them look more like they did in 1986,” the analyst said.

Company Chairman and co-founder Fred W. Wasserman stepped down in August, along with his wife and then-president, Pamela K. Anderson. The pace of asset sales has stepped up since then, according to one industry source familiar with the company, who asked not to be identified by name. Maxicare is now headed by former Hollywood financial executive Peter J. Ratican.

The company has not released any projections about its third-quarter financial results due in mid-November, Nyberg said. For the three months ended June 30, Maxicare reported a $59-million loss on revenue of $463 million.

Maxicare stock closed Monday at $1.1875 a share, up 6.25 cents, in heavy over-the-counter trading of 323,800 shares.