Nu-Med officials say the company does not expect to default on two issues of debentures, despite missing interest payments totaling $7.8 million.
Nonetheless, the announcement last week by the Encino health-care concern prompted Moody's Investors Service, a major credit-rating agency, to downgrade its ratings on the debentures.
Moody's previously had given the two Nu-Med debentures a rating of single-B-1, meaning the rating agency considers the debt to be a speculative investment. Because of the missed interest payments, Moody's last week downgraded the rating to single-B-3.
As a result, the next time Nu-Med tries to raise some money, it can expect to pay higher interest.
Nu-Med's common stock closed Monday unchanged at $3.88 a share, a 52-week low, in over-the-counter trading, after tumbling 30% last week.
Nu-Med operates nearly 50 health-care facilities nationwide, including acute-care hospitals, medical offices, psychiatric hospitals and a drug-treatment center. The company, with 5,000 employees, is profitable but operating under heavy debt.
As of April 30, Nu-Med's overall long-term debt totaled $315 million, or six times the company's stockholders' equity of $51 million.
In a brief statement, the company did not specify why it missed the interest payments. Nu-Med President William Hartauer declined an interview request.
It was unclear whether Nu-Med missed the payments on the debentures because it did not have the money or because it merely wanted to postpone the payments, pending the outcome of the bank-debt negotiations.
In July, Nu-Med announced that it planned to arrange long-term financing at fixed rates to help repay by about mid-October the $74 million it has borrowed under its current line of bank credit, which carries variable interest rates.
Nu-Med reported in the statement that it was negotiating with lenders to refinance its bank debt, and the interest payments on the debentures "are expected to be made in connection with the refinancing."
Nu-Med said it "believes that the interest payments (on the debentures) should be made" before Oct. 14, when Nu-Med would be in default on the debentures.
A debenture is a bond backed only by the general credit of the company, and is not secured by any specific asset. Nu-Med issued sinking-fund debentures, which means the issuer regularly sets aside money to repay part of the debt each year, just as a homeowner pays off part of the principal on a mortgage each year.
Interest on the Nu-Med debentures is payable on March 15 and Sept. 15.
In the fiscal year ended April 30, Nu-Med earned $4.4 million on revenue of $392 million, up from $2 million on revenue of $315 million in fiscal 1986. In the quarter ended July 31, Nu-Med profit fell 13% to $2 million from $2.3 million a year earlier, but revenue jumped 21% to $110 million from $90.8 million.