Counting down to days of reckoning

You know that dream you have, years after graduation, the one where you’re back in school and you just realized you have a huge test in the morning? Leaders of some Nashville-area companies must be having a similar experience these days — but one that is very real.

Looming like a final exam on many a corporate calendar is the date in 2009 when the company’s main credit facility is scheduled to come due.

Most large enterprises incur at least some debt in the ordinary course of business, often in the form of revolving lines of credit that mature in three to five years. Companies that secured financing a few years ago in the days of easy credit are now, as those loans reach the ends of their terms, confronting a landscape of shell-shocked bankers who have become wary of all but the safest loan applicants. If lenders won’t extend or refinance the debts, the resulting defaults could send companies into bankruptcy.

Just how many Nashville companies are up against debt expirations is unknown, but those that are publicly traded have to disclose their debt situations and other financial information, providing a glimpse at the condition of different firms as the worldwide credit crisis continues.

Some local public companies are saddled with hundreds of millions in debt coming due within 12 months, while others have none at all.

Complicating an already tricky task for some of them is that their cash flow from operations — how much money they actually generate (or lose) from their main business — won’t cover the debt payments they face, making it even more important for them to have access to new debt.

Nationally, economists have estimated that some $760 billion in corporate debt will come due in 2009. At a time when lenders are skittish, those borrowers will be competing for funds with the U.S. and other governments engaged in massive borrowings to finance economic stimulus plans.

They will also be in the market for loans alongside companies whose credit lines mature in 2010, as those firms try to avoid the stigma of having the loans show up as current obligations — defined as being due within a year or less — on their balance sheets.

A City Paper analysis of publicly available information on companies based in and around Nashville reveals the challenges a few of them are facing:

• Brookdale Senior Living Inc. “We are highly leveraged,” the assisted-living center operator said in its latest quarterly filing with the Securities and Exchange Commission, in early November. Most of the $267 million in current debt Brookdale reported then can be extended for two more years at its maturity. Not included in its computations of current debt, however, was a $204.6 million line of credit that becomes due and payable this May.

“We presently anticipate that we will be able to refinance or extend” that debt, the company said in its November report. “Given the current uncertainty in the credit market, however, there can be no assurance that we will be able to do so.”

Securities analyst Derrick Dagnan covers Brookdale at Nashville investment bank Avondale Partners, which does not have Brookdale as an investment-banking client. “We’re really focused on their debt and their ability to refinance,” Dagnan said, noting that the company has “pretty good cash flow.”

He is watching a Virginia-based competitor, Sunrise Senior Living, which is in a weaker state than Brookdale and faces a refinancing deadline in March. If Sunrise can’t get a loan, the omens are not great for Brookdale, but it still is likely to get credit, Dagnan thinks. If Sunrise does get its money, Brookdale is likely to succeed in doing so as well.

• American HomePatient Inc. This Brentwood-based home healthcare provider, which entered and then emerged from a Chapter 11 bankruptcy reorganization earlier this decade, has warned that it could be in trouble again if it can’t refinance $233.6 million that comes due Aug. 1.

“If the unfavorable conditions in the current debt market do not improve, the company believes that refinancing of the debt will be difficult or impossible to achieve,” a quarterly SEC filing announced at the end of October. If American HomePatient were to default, its lenders “would have the right to foreclose on substantially all tangible assets of the company,” the report said.

The end result of such a foreclosure might be to give Dallas investment firm Highland Capital Management the control over American HomePatient that it sought in a failed buyout attempt and proxy battle in 2006. Highland owns nearly half the outstanding shares of the company, and it’s also the largest holder of the company’s debt.

• Louisiana-Pacific Corp. In just about the most punishing economic environment imaginable for sellers of building materials, the company that put its name on the Tennessee Titans’ stadium has hunkered down to wait out the hard times. After suspending its dividend, closing several plywood mills and taking other painful steps, LP preserved enough capital to pay off, in December, the $125 million in current debt that was on its books at its last quarterly report.

More of LP’s debt comes due in August 2010. At the Bank of America Credit Conference in November, CEO Rick Frost said the company was “pursuing a refinancing strategy” by “working with banks to see what we can do around working on” the rest of its debts.

“We are very short-term focused right now,” Frost said. “The focus that we have is to live through this downturn and be ready to go when it starts to turn back up.”

• Psychiatric Solutions Inc. The Franklin-based psychiatric hospital operator had current debt of only $6 million as of its last financial reporting period, ending Sept. 30, 2008. At the end of 2009, though, the company will be staring down a $300 million revolving credit line. PSI had drawn $229 million on that line as of Sept. 30 of last year and was in compliance with all lending covenants.

Brent Turner, executive vice president for finance and administration at the company, told the JPMorgan Healthcare Conference last month that PSI, far from retrenching to save cash, remains in acquisition mode.

“We’re still very liquid and positioned well to do our acquisition plan,” Turner said. “But we recognize that the revolver maturity and getting that put behind us is important, and we plan on addressing that certainly in the first half of the year. And if the debt markets continue to rally, it would be sooner than that.”