Shares of Community Health Systems fell more than 16 percent Wednesday after the hospital operator reported a net loss of $17 million on $3.2 billion worth of revenue in the third quarter and announced plans to issue debt maturing in eight and nine years to pay off $2.6 billion worth of debt coming due in 2022.
CHS’ third-quarter losses were a significant improvement from the same time last year, when the Franklin-based reported a net loss of $325 million on $3.45 billion of revenue. Year-over-year revenues declined nearly 6 percent but the company’s adjusted EBITDA saw a $16 million increase to $388 million.
Those results appeared to encourage investors late Tuesday, when CHS shares climbed 4 percent after hours. But word of the debt exchange plan — the details of which are here — seemed to spook the market. In a press release, CHS leaders said they intend to pay off $2.6 billion of unsecured notes with an 6.875 percent interest rate that are schedule to come due in 2022 with two sets of new notes, one of $700 million of secured debt with an interest rate of 8 percent and maturing in 2027, the other a $1.9 billion st of unsecured debt paying 6.875 percent in interest and scheduled to come due in 2028.
Shares of CHS (Ticker: CYH) — which finished September with $13.3 billion in total long-term debt — fell steeply in early-Wednesday trading and recovered only a little bit of ground during the rest of the session. They closed the day at about $3.81, down 16.7 percent, on trading volume that was double their daily average. They had over the past month rallied from about $3.60 to $4.60.
The company has completed 12 hospital divestitures — mainly of facilities with low single-digit profit margins — since the start of this year as a part of a larger plan to pay off some of its debts. Execs announced three more pending sales in Virginia earlier this week and on Wednesday said they intend to carry their divestiture plan into mid-2020, a departure from its original intent to stop selling off its hospital portfolio by the end of the year. CHS leadership reported the sales have netted nearly $2 billion in annual revenue thus far.
In the facilities CHS still manages, there has been some growth. Same-store admissions rose 2.4 percent and surgical procedures rose 4.6 percent. The company plans to continue to grow its outpatient network — which they attribute admissions growth to — through primary care offices, freestanding emergency departments and ambulatory surgical centers.
The numbers show a decent turnaround for CHS, however the company continues to grapple with intense debt loads maturing in the next few years. Spending nearly $492 in cash interest in the third quarter alone, with a 121.4 percent decrease in net cash provided by operating activities, the company is having to make moves to extend a 2022 deadline for more than $2.6 billion in debt.
“We delivered a strong same-store performance across key metrics during the third quarter,” CHS Chairman and CEO Wayne Smith said in the release. “Continued execution of our transfer program, Accountable Care Organizations, capital investments, and strategic plans have driven these improved results. We believe these investments, along with recent divestitures and ongoing operating efficiency initiatives, have positioned the Company for continued improved performance. As we move forward, we expect a good finish to this year and believe we are well-positioned to deliver a strong performance in 2020.”
This story first appeared on our sister publication the Nashville Post