Zacks_Analysts' Blog : Gentiva Modifies Credit Facility - Analyst Blog

Yesterday, Gentiva Health Services Inc. (GTIV) announced an amendment to its senior secured credit agreement in order to make the financial agreements more flexible for the fourth quarter of 2011.

The amendment consists of alteration of the definition of consolidated EBITDA (earnings before interest, taxes, depreciation and amortization), whereby all expenses related to Gentiva’s cost realignment and the operating losses of all the branches that are scheduled to be closed or sold in the last quarter of 2011, will be added back during the calculation of consolidated EBITDA.

Additionally, the company will now be allowed to maintain its consolidated leverage ratio at a maximum of $4.75:1 until the end of 2011, up from $4.50:1 allowed previously. Nonetheless, the interest rate applicable under the credit facility remains unaltered.

However, Gentiva will have to pay various fees relating to the amendment, one of them being a consent fee of 0.25% of term loans and revolving credit obligations under the credit agreement. The consent fee will be paid to all lenders who give their consent to the amendment.

Gentiva is implementing a two-pronged strategy to increase the flexibility of its financial covenants over the next few years in  an effort to better reflect the changed reimbursement environment. The amendment of the credit facility is the initial part of the strategy.

Earnings Review

Gentiva reported third-quarter 2011 operating earnings of 27 cents per share, lagging the Zacks Consensus Estimate of 48 cents and 71 cents earned in the year-ago quarter.

The Zacks Consensus Estimate of earnings for the fourth quarter of 2011 is currently pegged at 30 cents per share, down by a significant 57% year over year. 7 out of 8 firms covering the stock revised their estimates downward, while no upward revision was witnessed over the past 30 days.

For 2011, Gentiva’s earnings are expected to be $1.65 per share, sinking 41.5% over 2010. The company is a leading national provider of comprehensive home health services and competes with organizations like Amedisys Inc. (AMED) and Lincare Holdings Inc. (LNCR).

Gentiva currently carries a Zacks #5 Rank, implying a short-term Strong Sell rating.