Capital markets shrink for imaging ventures

Financiers of diagnostic imaging equipment are showing more caution,but have yet to see a definitive trend emerge for joint-ventureddiagnostic imaging centers since safe harbor implementation.

No finance company among the dozen SCAN contacted in Septemberrequires certification of safe harbor compliance before jointventures qualify for equipment loans or leases. But executiveswith LINC Management Services, Norwest Financial Leasing and GeneralElectric Financial services are wary of the joint-ventured centersthat approach them for financing.

"There is an erosion in the strength of those deals,"said John Nuccio, senior vice president of Norwest Financial Leasingin Northfield, IL. He has seen some panic among imaging centerowners as they scramble to find financing to replace physicianinvestment.

But Norwest was considering financing for two new joint-venturedcenters in September. The company did not require that these applicantsoffer assurances that they would comply with the safe harbors.

Nuccio questioned whether such guarantees would be of value."It's almost like asking them whether they intend to paytheir taxes. Nobody is going to tell you they won't pay the IRS,"he said.

Most imaging center managements are still in a wait-and-seemode, said Robert Maier, president of LINC Management Servicesin Chicago. Some new deals have moved forward since July becauseit appears that no one can qualify for safe harbor protection,he said.

"The rules are so restrictive that they are almost notworth considering," he said.

The capital market will shrink until there is a better definitionon the legality of specific ventures, Maier added. That meansnew projects may not find financing at any price. "Some financiersmay be drawing back their horns," he said.

In contrast, Norman Jensen, marketing manager of financialservices at GE, anticipates a slowdown in the formation of leadorganizations, which provide the main impetus for developing newcenters.

"What does that mean for equipment sales? Until the regulationsare understood, it will probably slow acquisitions by imagingcenters or at least force their purchasing decisions into abeyance,"he said.

BRIEFLY NOTED:

• Maxum Health completed its initial public offering successfullylast month (SCAN 8/14/91). The Dallas mobile imaging servicesfirm sold 1.5 million shares of common stock at a price of $12.50per share. It will use $16.7 million in net proceeds to reduceindebtedness and redeem preferred stock. Maxum is listed on theAmerican Stock Exchange under the symbol "MXH."

Maxum also executed a $6.5 million revolving credit facilitywith Merrill Lynch Interfunding last month. The new facility replacesthe company's previously outstanding senior debt, subordinateddebt and revolving credit facilities with MLI.

• Medical Imaging Centers of America jolted the financialcommunity late last month with a statement that it expects a lossin the third quarter (end-September) and fourth quarter of thisyear. Company stock dropped nearly 50% in value, from $9.63 to$5.00, on the day of the announcement (see graph). MICA's higheststock price over the past year was $15.25.

Revenues came in lower than expected during the third quarter,failing to match increased operating expenses incurred throughexpansion of company business. MICA attributed the softness bothto slow revenue generation from new contracts and the fact thatthe firm has entered into fewer than expected contracts involvingits new equity-sharing program during the quarter. The companywas not available for comment last week.