PhillyDeals: Area companies divided on health-care plan

President Obama's health-care plan has put some of Philadelphia's biggest employers in opposite camps.

Verizon Communications Inc. and Exelon Corp. (which owns Peco Energy Co.) are among the companies backing the National Coalition for Health Care, whose president, Dr. Henry Simmons, yesterday called Obama's proposal "just what the doctor ordered."

Drugmaker and hospital lobbies have made deals with the president. But private health insurers are holding out.

Cigna Corp. chairman Edward Hanway went on Fox TV a few hours before the president's Wednesday night speech to oppose Obama's planned "public option" government-backed insurer and taxes on fancy health plans to help fund poor people's care.

"Adding taxes will not lower costs," Hanway said.

"Public option really won't do much to reduce costs and it certainly won't improve quality. And ultimately it will reduce choice for the American people," apparently by shutting down Cigna: As Fox host Neil Cavuto noted, private insurers "obviously can't undercut the government's price."

Still, Hanway said Cigna shares Obama's paradoxical goals of more, better, cheaper care. How? Spokesman Chris Curran told me Cigna backs proposals from industry lobby America's Health Insurance Plans: an offer to cover anyone, regardless of "preexisting conditions," in exchange for a government mandate forcing all Americans to buy health insurance. And no government competition.

SSG Capital Advisors L.P., West Conshohocken, is solvent enough that five partners were able to buy the firm from owner PNC Financial Services Group, with financing from local lender Penn Liberty Bank earlier this year.

SSG is an adviser to distressed companies that are less creditworthy. "The deals we're seeing, the bank is hesitant about lending more dollars," said partner Matt Karlson.

That is a big change from the way things used to work. "The leveraged buyout model was, borrow [a lot] and then work it down," said partner Michael Goodman. "In the credit markets of '06 and '07, any time there was any debt capacity, the owners would max it." When the economy slowed, firms fell behind on their loans.

Why don't banks foreclose? They're afraid: "To sell in today's environment would leave lenders substantially more impaired," said partner Mark Chesen.

"If the company has a pulse and is marginally [paying] interest, the bank is saying, 'Let's restructure. Convert the revolving loan to a term loan. Convert part of the term loan to lower rates, and defer the principal. Defer amortization. Maybe convert to equity.' Traditionally, banks don't want to do that."

Aren't private-equity funds looking for distressed-company bargains? "All the sources of funding have run for the hills," said partner J. Scott Victor. "All the college endowments. All the institutions that were chasing higher yield. They have decided in retrospect they don't have the risk appetite. There [are] few lenders and little lending."

Big national companies "have access to the investment-grade bond markets," Chesen said. "They're still becoming more profitable by cutting costs, laying people off. But small and middle-market companies don't have access even to junk bonds."

The best solution for troubled companies in need of cash, said Chesen: "The owner needs to write a big check." That's what the family owners of two SSG clients, Boscov's Department Store L.L.C. and Ritz Camera Centers Inc., did in buying their companies out of bankruptcy.

"Comcast and Time Warner Cable should merge," creating a single company with nearly two-fifths of the nation's cable TV customers, big Internet and phone, and growing wireless businesses, Citigroup Inc. analyst Jason Bazinet told investors in a report yesterday, after a federal court lifted the former Federal Communications Commission cable-merger limit.

The deal-starved bankers say the combination could shave $1.6 billion from yearly network programming costs, plus $1.1 billion "in other cost savings" (job cuts). They're not suggesting cable rates would drop.