Bonds May Alleviate HMO

It is beginning to look like Harvard Pilgrim Health Care Inc. might be issuing bonds after all.

Just one month after Massachusetts officials put the failing HMO into state receivership, a possible plan has surfaced that would have Harvard Pilgrim restructuring some, or all, of its estimated $265 million hospital debt through a private placement of distressed subordinated notes.

Under such an arrangement, the securities would be sold directly to participating hospitals that would then collect interest payments from Harvard Pilgrim until the notes mature. Such a procedure would be followed even if the HMO remains in receivership since, like bankruptcy, such a condition only shields a debtor from the obligations it incurred prior to being put into receivership.

However, there is still a question as to whether Bay State hospitals would be willing to trade receivables for additional debt considering that the issuer has revised its financials several times. Harvard Pilgrim's total 1999 operating loss estimate was raised again last week, this time to $197 million from $177 million (HYR 01/10/2000).