Insight Health could face bankruptcy following missed notes payment

By Caroline Salls

Pittsburgh, Nov. 15 - Insight Health Services Holdings Corp. would likely be forced to file Chapter 11 bankruptcy if its floating-rate notes due November 2011 are accelerated as a result of the company's failure to make a Nov. 1 interest payment, according to a 10-Q filed with the Securities and Exchange Commission.

The grace period for making the interest payment on the notes expires on Dec. 1.

The company said it has a "substantial amount of debt, which requires significant interest and principal payments."

In any event, Insight said it will need to restructure or refinance all or part of its debt on or before the debt matures.

If it cannot take steps to meet its liquidity needs or to restructure or refinance its debt when due, the company said it would likely be forced to file bankruptcy.

Insight has hired Jefferies & Co. to help it develop and finalize a restructuring plan to significantly reduce the outstanding debt and improve the company's cash and liquidity position, and it is in talks with holders of a significant amount of the principal amount of the floating-rate notes regarding a possible restructuring.

As of Sept. 30, Insight has $298.1 million in total debt, including the $293.5 million of floating-rate notes.

According to the 10-Q, the non-payment also constitutes an even to default on the company's revolving credit facility, and Insight may not be able to borrow on that facility after Dec. 1.

In addition, the company said it has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern, and the opinion of its independent registered public accounting firm for the fiscal year ended June 30 contained an explanatory paragraph regarding substantial doubt about Insight's ability to continue as a going concern.

The company said the revolving credit facility requires it to deliver audited financial statements without a going-concern warning within 120 days following the end of the fiscal year.

Since it was not able to do so, the company is in default on the revolver because of an impermissible qualification default.

On Sept. 20, the revolver lender agreed not to act on the impermissible qualification default and interest payment default to allow full access to the loan until Dec. 1.

There are no borrowings outstanding under the revolver, but the company said $1.7 million in outstanding letters of credit would need to be cash collateralized if the revolver is eliminated.

The company is a Lake Forest, Calif., provider of diagnostic imaging services.

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