Bond-rating services are questioning the health of a giant health-care industry financier that helps keep many hospitals functioning, saying that some $3.35 billion worth of bonds serviced by National Century Financial Enterprises may not be sufficiently backed by required cash reserves.
Fitch Ratings yesterday withdrew its ratings on bonds issued by subsidiaries of the Ohio-based company after earlier downgrading them. Company officials said they took that unusual step because National Century has not lately provided enough information to support Fitch's rating.
Moody's Investors Service lowered its ratings Friday, saying National Century appeared to use cash reserves inappropriately to finance new deals. Moody's said in a statement that "this rating action reflects Moody's concern about NCFE's financial stability."
The abrupt ratings revisions are a sharp blow to National Century, which provides cash flow for hundreds of struggling hospitals around the nation by lending them money immediately in exchange for relatively high interest rates and control of the institutions' receivables -- money that insurers, HMOs, the government and others are obligated to pay the institutions over time. Among its customers in recent years has been Doctors Community Healthcare Corp., which owns Greater Southeast Community Hospital and Hadley Memorial Hospital in the District.
It's unclear what impact the ratings changes will have on hospitals or on investors who until recently considered the company a fairly safe bet. In a statement, Moody's said its analysis incorporates "a higher likelihood of default of NCFE and its corresponding effect on the healthcare providers to which it lends."
The bonds at issue were released from 1998 to 2001 as part of financing vehicles created by National Century called NPF XII and NPF VI.
Calls to the company yesterday evening went unanswered, and messages were not returned. The company released a statement after the Moody's action, saying its officials would "continue to work closely with Moody's, Fitch, investors and the [bond] trustee to resolve any concerns that currently exist."
Founded a decade ago, the company recently described itself as the "largest finance company providing medical accounts receivable financing to middle-market healthcare providers." In promotional material, the company claims that revenue increased "at a compound annual growth rate approaching 40%, from $66 [million] in 1996 to $307 [million] in 2001."
As recently as June, the company described itself in promotional material as a "sound investment opportunity" and said it had financed its activities through receivable-backed securities bearing triple-A ratings from Fitch and Moody's. Its Web site says it has bought more than $19 billion in industry receivables.
The company's chairman is Lance K. Poulsen, an active Florida Republican who donated at least $44,000 to the state GOP and another $1,000 to Gov. Jeb Bush, President Bush's brother. On Sept. 9, Gov. Bush used a National Century jet for an in-state trip, according to press reports.
One week ago, the company disclosed to Moody's that it faced a "liquidity problem," due in part to a lack of support from the capital markets. As a consequence, the company tapped into reserve accounts required to back the bonds, according to a statement from Moody's, which said it is examining National Century's conduct and financial activity.
"Moody's ongoing review will focus on, among other things, the ability of NCFE to sustain operations in the current environment," the Moody's statement said.
Fitch Managing Director Kevin P. Duignan declined to speculate about the company's prospects. But he said his company had to back away from the bonds because National Century was not communicating appropriately about its business.
"We have had an ongoing concern with the communication between Fitch and NCFE," he said. "It's an incredibly unusual situation."