Gentiva watching leverage covenant in case compliance problem arises

By Sara Rosenberg

New York, Sept. 7 - Gentiva Health Services Inc. is keeping an eye on the leverage ratio requirement in its credit facility, but is waiting until later in the year to see if compliance is an issue that will need to be addressed, company officials said at Baird's 2011 Health Care Conference on Wednesday.

Currently at 3.93 times, the company's leverage is in compliance with the leverage requirement of 4.75 times, and the expectation is that compliance will be maintained through the rest of this year.

However, by the fourth quarter of 2012, the leverage requirement moves to 3.75 times, and with the potential 2012 Medicare rate cut, there is a possibility that the company will need to seek a waiver.

Officials said that they have been in discussions with the lead banks, and the banks don't feel a need to do anything about the covenant just yet since the possibility of non-compliance is based on a worst-case scenario and a rate change that there's no clarity on at the moment.

Furthermore, officials said that there are ways to mitigate the potential problem, such as divesting non-core assets and using strong free cash flow to reduce debt.

The company expects to have more clarity on the issue in the October/November timeframe, and if the perception is that there will be a problem with the leverage requirement, a waiver will be sought, officials added.

To get a debt covenant waiver, the company would need 51% approval from lenders.

Gentiva is an Atlanta-based home health care provider.

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