NEW YORK, July 19 (IFR) - The CDS spreads in Community
Health Systems eroded more than 10% on Friday on a raft of bad
news for the hospital operator, which pre-announced
disappointing earnings and a widening investigation of the
company by the US Department of Justice.
CDS in the Tennessee-based company widened 34bp to 371.5
after it said it would miss its EBITDA target due to weak
volumes and a drop in margins. It said adjusted EBITDA is
anticipated at USD414m, down from USD483m a year ago. Net
operating revenues for Q2 will be USD3.236bn versus USD3.243bn
for the year-ago period.
In addition, Community Health expects income before
taxes will be USD65m compared to USD151.7m last year.
The EBITDA miss was 17% below Bank of America Merrill
"Despite the miss, full year EBITDA guidance was only
lowered by $75m, implying that 2H13 would be roughly in line
with prior expectations," BofA Merrill analyst Kevin Fishbeck
wrote in a client note. The company said this quarter is
anticipated to be its first significant earnings miss since Q3
CDS is a kind of insurance investors buy to guard against
the company defaulting on its outstanding debt, and Friday's
widening means that the market believes the likelihood of a
default is increasing.
Community Health's bonds also declined on Friday, with the
USD2bn 8% November 2019s wrapped around 106.0 from 108
yesterday. Its USD1.2bn 7.125% July 2020s were seen at 103.25
from 104.0 at Thursday's close.
Even so, the synthetic market has maintained a mostly
optimistic opinion of Community in spite of its recent woes. CDS
curves have steepened in the last three months in short- and
intermediate-dated curves, even in the face of overall intraday
volatility in the markets.
In addition to Friday's disappointing announcement, it also
said it had received an additional subpoena from the DOJ after
meeting twice with the government this year. The investigation,
which began in April 2011, has centered on Medicare admissions
and its emergency room practices.
"To date we have not seen this investigation impair
Community Health's ability to do deals," Bank of America