National Century Financial Enterprises Inc. intends to seek Chapter 11 bankruptcy protection from creditors, possibly as soon as today, a sign that troubles at the health-care industry financier continue to grow, according to sources familiar with the thinking of company officials.
In the past week, two National Century clients filed for bankruptcy protection and the company's chief executive, Lance K. Poulsen, resigned. The company's directors hired an outside turnaround firm to take over management.
National Century, based in Dublin, Ohio, has been a lender of last resort to struggling hospitals and other health-care providers. In exchange for loans, it takes control of its clients' receivables, such as money that insurers and government health programs pay for services, packages them into bonds and sells them to investors. The company's operation began rapidly unraveling late last month, after bond-rating firms questioned National Century's use of reserve funds and downgraded $3.35 billion worth of its bonds.
The quick turn toward a bankruptcy filing in recent days signals a struggle over the future of National Century and the search for its remaining holdings. The dispute pits the owners and their turnaround advisers, Alvarez & Marsal Inc., against bondholders and a group of accountants brought in to find the assets, according to a person familiar with the investors' investigation.
Bankruptcy would "allow them to keep control of various NCFE entities," one informed person said on condition of anonymity.
A National Century spokesman declined to comment. Houlihan, Lokey, Howard & Zukin Inc., the company retained by bondholders to find the company's assets, did not return phone calls.
The repercussions from National Century's problems seem likely to continue. One client, Tender Loving Care Health Care Services Inc., a national home-nursing company, filed for bankruptcy protection last week, saying its financier had stopped providing it with cash. PhyAmerica Physician Group, which depended on National Century for as much as $25 million a month, filed for Chapter 11 protection on Monday.
On Wednesday, home health-care provider Med Diversified, which is partly owned by National Century and its principals, filed a lawsuit that accused Poulsen, a couple of National Century subsidiaries and the bank trustees of the bonds of fraud. Among others named in the suit are J.P. Morgan Chase & Co. and Bank One Corp., which were trustees for some of the bond funding pools.