Metropolitan Health Networks, Inc. (NYSE AMEX: MDF)
(“Metropolitan”) and Continucare Corporation (formerly NYSE:
CNU) (“Continucare”) announced jointly today the successful
completion of the acquisition of Continucare by Metropolitan. As a
result of the acquisition, Metropolitan is the largest provider
service network serving the Medicare and Medicaid eligible
population in Florida, and one of the largest in the United
States.
Metropolitan now owns and operates 32 primary care medical
practices and manages a network of more than 250 contracted,
independent, primary care practices across 18 Florida counties,
including the Daytona, Miami, Ft. Lauderdale, West Palm Beach, and
Tampa metropolitan areas. Metropolitan serves over 68,000 Medicare
Advantage and Medicaid customers. Combined proforma revenues for
the two companies for the six months ended June 30, 2011 were $348
million.
Metropolitan now serves Medicare, Medicaid, and commercial
customers and has Medicare Advantage contracts with Humana, Inc.,
United Healthcare, Coventry Health Care, and Wellcare Health Plans,
Inc. In addition, Metropolitan has contracts with most Medicaid
insurers operating in Florida.
Metropolitan paid an aggregate of $403 million in cash and
issued 2.5 million shares of its common stock to Continucare’s
stockholders and option holders in consideration for their shares
of Continucare common stock and options to purchase shares of
Continucare common stock. Metropolitan expects that the transaction
will be accretive to earnings per share in 2012.
Metropolitan used a combination of its and Continucare’s
existing cash resources, together with an aggregate of $315 million
of borrowings under the First Lien Credit Agreement and the Second
Lien Credit Agreement, to pay the cash merger consideration at the
closing of the Merger. Details of the new credit facility are
discussed below. Immediately after the effective time of the
Merger, the former shareholders and option holders of Continucare
owned approximately 5.8% of Metropolitan’s outstanding common
stock.
Bolstered Management Team:
Two Continucare executives are joining Metropolitan’s senior
leadership team, Gemma Rosello and Luis Izqueirdo. Gemma joined
Continucare in 2005 with over 25 years of management experience in
the South Florida health care market. She has broad experience in
managed care from both a payer and provider perspective and joins
the Metropolitan team as President of Continucare Corporation, now
a wholly-owned subsidiary. Luis was appointed senior vice
president, marketing and business development for Continucare in
January 2004 and brings almost 30 years of health care management
experience to the Metropolitan team. He has held senior executive
positions for several Florida based health care companies and will
serve as Metropolitan’s Chief Marketing Officer.
Also announced, Grace Hodge, Metropolitan’s current Senior Vice
President of Medical Operations - Central Florida, was named
Executive Vice President of MetCare of Florida, Inc., which has
historically been Metropolitan’s core business unit. Grace has more
than 30 years of clinical and administrative health care
experience. She has brought extensive education and experience in
organizational change, leadership development, and time management,
to Metropolitan and has been instrumental in bringing service
excellence to the forefront of the organization. In her new role,
she will be responsible for all operations of MetCare’s provider
service network.
Continucare Closes on Medical Clinic Acquisition:
Immediately prior to Metropolitan’s acquisition of Continucare,
Continucare acquired the assets of S.B.B. Medical Group, Inc., the
primary care practice of Hilton Gomes, M.D. Dr. Gomes is an award
winning physician and researcher who has successfully built a
practice serving the medical needs of almost 700 Humana members.
The S.B.B. Medical Group acquisition is part of Metropolitan’s
ongoing efforts to acquire high quality primary care practices that
serve Medicare and/or Medicaid patients.
“Delivering our accountable model of care to
Florida customers has been the mainstay of our company and we now
have the resources to deliver it on a broader scale...”
states Michael Earley, Chairman and CEO of
Metropolitan Health Networks, Inc.
“It’s a great day for Metropolitan Health Networks, Inc.,”
stated Michael Earley, Metropolitan Health Networks’ Chairman and
Chief Executive Officer. “Today’s announcement represents the
culmination of months of hard work and commitment from a team of
dedicated and talented Metropolitan and Continucare professionals
who share a vision about the future of health care. Independently,
our two organizations have travelled similar paths providing
quality care to customers in Florida, and now our model of
proactively managing care, one that is customer focused and primary
care centric, is being recognized as a significant and meaningful
solution to what ails our nation’s health care system today.
Delivering our accountable model of care to Florida customers has
been the mainstay of our company and we now have the resources to
deliver it on a broader scale. Providing health care services to
seniors is one of the fastest growing businesses in our country. We
could not be more excited about the potential of our business and
about being active contributors to the health care solution as we
work to deliver improved patient outcomes and satisfaction, as well
as increasing value to our shareholders.”
Earley concluded, “I want to give a special welcome to our new
Continucare team members. Quite frankly, the most important assets
in this acquisition are Continucare’s associates, physicians and
other clinicians, managers, and executives. This is one of the most
critical service industries in our country today, and it will take
talented and experienced people for us to continue performing and
growing. We have long shared a patient or customer-centric
operating philosophy that has been successful, and our respective
results show that. Together we have important work to do and the
MetCare team welcomes you. To our MetCare associates, you should be
proud of this transformational step in our history. Your dedication
and hard work allowed it to happen. Thank you!”
Outgoing Continucare CEO, Richard C. Pfenniger, Excited About
Future of the Organization:
“The interests of Continucare’s shareholders, its medical
professionals and, most importantly, its patients are well served
by this merger,” said Richard C. Pfenniger, Jr. Continucare’s
Chairman and Chief Executive Officer. “The combination results in
an exceptionally strong and talented organization that is well
positioned to meet the evolving needs of the health care
industry.”
New Credit Facility Terms:
In connection with the merger, Metropolitan announced today that
it entered into a senior secured first lien credit agreement (the
“First Lien Credit Agreement”) and a senior secured second lien
credit agreement (the “Second Lien Credit Agreement”). The First
Lien Credit Agreement provides for a $240 million senior secured
first lien term loan facility and a $40 million revolving credit
facility. The Second Lien Credit Agreement provides for a $75
million senior secured second lien loan facility.
All obligations under the two credit agreements (the “Credit
Agreements”) are guaranteed jointly and severally by substantially
all of Metropolitan’s existing and future subsidiaries, and are
secured by first and second priority security interests,
respectively, in substantially all of Metropolitan’s and the
guarantors’ existing and future assets.
General Electric Capital Corporation is a lender and
administrative agent for all the lenders under each of the Credit
Agreements. GE Capital Markets, Inc. and Suntrust Robinson
Humphrey, Inc. are the joint lead arrangers and joint bookrunners,
SunTrust Bank is the syndication agent, and Fifth Third Bank is the
documentation agent under each of the Credit Agreements.
First Lien Credit Agreement
Borrowings under the First Lien Credit Agreement bear interest
at a rate per annum equal, at Metropolitan’s option, to LIBOR plus
5.5% or the Base Rate plus 4.5% for term loans, and LIBOR plus 5%
or the Base Rate plus 4% for revolving loans. The “LIBOR” rate is
determined by reference to the London Interbank Offered Rate,
subject to a minimum rate of 1.5%. The “Base Rate” is determined by
reference to the highest of (1) the “Prime Rate” quoted by the Wall
Street Journal, (2) the applicable federal funds rate plus 0.50%
and (3) LIBOR, subject to a minimum rate of 1.5%. Borrowings under
the First Lien Credit Agreement may also be subject to an
additional 2% per annum interest charge in connection with the
occurrence of certain events of default.
Borrowings under the first lien term loan facility are subject
to annual amortization payments, payable quarterly. The balance of
all borrowings under the First Lien Credit Agreement are due and
payable at maturity, October 4, 2016.
Metropolitan may prepay the first lien term loan or permanently
reduce the revolver commitment under the first lien credit
facilities at any time without penalty. Metropolitan is required to
make mandatory prepayments (subject to certain basket amounts and
exceptions) in varying amounts out of its excess cash flows and
from the proceeds of any public equity offerings, asset sales, debt
issuances and extraordinary receipts.
The First Lien Credit Agreement includes customary restrictive
and financial covenants, subject to certain basket amounts and
exceptions, as well as customary and company specific events of
default.
Second Lien Credit Agreement
Borrowings under the Second Lien Credit Agreement bear interest
at a rate per annum equal to, at Metropolitan’s option, LIBOR plus
11.75% or the Base Rate plus 10.75%. The LIBOR floor under the
Second Lien Credit Agreement is 1.75%. Borrowings under the Second
Lien Credit Agreement may also be subject to an additional 2% per
annum interest charge in connection with the occurrence of certain
events of default.
Borrowings under the Second Lien Credit Agreement are generally
due and payable on the maturity date, October 4, 2017. Prepayments
under the Second Lien Credit Agreement are generally prohibited
until all borrowings under the First Lien Credit Agreement have
been repaid. To the extent a prepayment of borrowings under the
Second Lien Credit Agreement is permitted, the payment will be
subject to prepayment fees through year 4 of the Second Lien Credit
Agreement and, if the prepayment is made prior to May 4, 2013, a
make whole payment.
After May 4, 2013 and provided all borrowings under the First
Lien Credit Agreement have been repaid and the facility has been
terminated, Metropolitan will, subject to certain baskets and
exceptions, be required to make mandatory prepayments on
substantially the same terms and conditions as required under the
First Lien Credit Agreement.
The Second Lien Credit Agreement contains substantially the same
negative covenants, financial covenants and events of default as
the First Lien Credit Agreement, subject to looser permitted
baskets, ratios and thresholds.
Forward Looking Statements:
Except for historical matters contained herein, statements made
in this press release are forward-looking statements. Forward
looking statements include statements regarding Metropolitan’s
expectations with respect to the results of the merger between
Metropolitan and Continucare. Without limiting the generality of
the foregoing, words such as “may”, “will”, “to”, “plan”, “expect”,
“believe”, “anticipate”, “intend”, “could”, “would”, “estimate”, or
“continue,” or the negative other variations thereof or comparable
terminology, are intended to identify forward-looking statements.
In addition, statements regarding the prospects for our business
and/or our industry as a whole are forward looking statements.
Investors and others are cautioned that a variety of factors,
including certain risks, may affect our business and cause actual
results to differ materially from those set forth in the
forward-looking statements. These risk factors include, without
limitation, (i) our ability to integrate the acquired operations of
Continucare and to realize the anticipated revenues, economies of
scale, cost synergies and productivity gains in connection with the
merger and any other acquisitions that that we may undertake, as
and when planned, including the potential for unanticipated issues,
expenses and liabilities associated with those acquisitions and the
risk that Continucare fails to meet its expected financial and
operating targets; (ii) the potential for diversion of management
time and resources in seeking to integrate Continucare’s
operations; (iii) the impact of our significantly increased levels
of indebtedness on our funding costs, operating flexibility and
ability to fund ongoing operations with additional borrowings,
particularly in light of ongoing volatility in the credit and
capital markets; (iv) our ability to operate pursuant to the terms
of our debt obligations; (v) the calculations of the acquisition
price in accordance with the methodologies of the provisions of the
authoritative guidance for business combinations, the allocation of
this acquisition price to the net assets acquired, and the effect
of this allocation on future results, including our earnings per
share, when calculated on a GAAP basis; (vi) our ability to meet
our cost projections under various provider agreements with Humana;
(vii) our failure to accurately estimate incurred but not reported
medical benefits expense; (viii) pricing pressures exerted on us by
managed care organizations and the level of payments we indirectly
receive under governmental programs or from other payors; (ix) a
loss of any of our significant contracts or our ability to increase
the number of Medicare eligible patient lives we manage under these
contracts; (x) our still limited ability to predict the direct and
indirect effects of the health care reform laws adopted in 2010;
(xi) future legislation and changes in governmental regulations;
and (xii) the impact of Medicare Risk Adjustments on payments we
receive from Humana. Metropolitan and Continucare are also subject
to the risks and uncertainties described in their respective
filings with the Securities and Exchange Commission, including
Metropolitan’s Annual Report on Form 10-K for the year ended
December 31, 2010 and Quarterly Report on Form 10-Q for the quarter
ended June 30, 2011, and Continucare’s Annual Report on Form 10-K
for the year ended June 30, 2011.
About Metropolitan Health Networks, Inc.:
Metropolitan is a growing health care organization that provides
comprehensive health care services for Medicare Advantage members
and other patients in Florida. To learn more about Metropolitan
Health Networks, Inc. please visit its website at
www.metcare.com
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