Franklin, Tenn.-based Community Health Systems could face a cash crisis after its subsidiary Health Management Associates agreed to pay the federal government $262 million to settle fraudulent billing and kickback allegations, Moody's Investors Service warned Sept. 26.
Jessica Gladstone, a Moody's senior vice president, commented on how the payout would affect CHS' financial picture Sept. 26. The settlement "will severely weaken the company's already constrained liquidity," she said.
Ms. Gladstone warned that the settlement could cause CHS to violate its credit agreements.
"We expect the company will need to borrow on its revolvers in order to fund the settlement, reducing the cushion under the company's already tight financial covenant on its revolving credit facility, potentially leading to a covenant breach over the next 12-15 months," she said.
In a Sept. 25 news release announcing the settlement, CHS said the $262 million settlement is expected to be paid in October.
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