ASHS reduces debt with back-to-basics strategy

September 25, 1991

American Shared Hospital Services of San Francisco has whittleddown its burden of high-yield debt the old fashioned way: by earningmore and spending less. Ironically, the executive in charge of this back-to-basicsstrategy is a former Wall Street

American Shared Hospital Services of San Francisco has whittleddown its burden of high-yield debt the old fashioned way: by earningmore and spending less.

Ironically, the executive in charge of this back-to-basicsstrategy is a former Wall Street investment banker with tenureat junk-bond pioneer Drexel Burnham Lambert.

"It was exciting working in the investment banking industryin the '70s and '80s," said Marla R. Thomas, ASHS presidentand COO. "I learned about the capitalization and the strengthsand weaknesses of many companies in the health-care industry.But I prefer being in a position with profit-and-loss responsibilities,trying to make a company with 500 terrific employees successful."

Thomas, who earned an M.B.A. degree from Harvard, joined ASHSin May. She jumped in with her sleeves rolled up.

The company instituted an expense reduction program in June,which cut pay for senior management and reduced staff. This efforttrimmed $150,000 a month in expenses and brought management closertogether in the effort to reduce the debt load, Thomas said.

ASHS is making progress in reducing its load of high-yielddebt. The company assumed $30 million in high-yield, unsecureddebt with bonds issued in late 1988, said Richard Magary, vicepresident of administration. That sum has been reduced to $19million, he said.

In February, ASHS will pay off a large chunk of debt that coststhe company $330,000 each month to service, Thomas said. As thefirm reduces debt expenses and improves the profit margin on itsfixed and mobile imaging projects, there will be more opportunitiesto raise relatively inexpensive debt and equity capital, she said.

ASHS earned a slight profit of $56,000 in the second quarterof 1991 (end-June), compared to a loss of $391,000 in the sameperiod of 1990.

ASHS has sold off low-margin imaging routes using unsophisticatedequipment and expanded its fleet of high-end imaging systems,which include high-field MRI, single-photon emission computedtomography, and color-flow Doppler ultrasound.

The firm has reduced its CT fleet from about 40 at the timeof its CuraCare acquisition several years ago to about 20. Theremaining systems were selected for their profitability and providea return close to that of the company's MRI operations, Thomassaid.

The large debt load has not prevented ASHS from expanding itsimaging operations on the high end. Six MRI systems were purchasedsince the start of the year, bringing the total to 27 systems,25 of which are high-field GE Signa units.

"This is consistent with our corporate philosophy to gofor high-end medical equipment that hospitals by themselves wouldnot want to staff or have the resources to own--and to share thatequipment," Thomas said.

ASHS is a public company with net tangible assets in excessof $50 million. It is thus in a position to pick up independentimaging centers seeking to find cover under the safe harbor regulations.Almost all of the company's business, however, has traditionallyinvolved fixed or mobile services provided to hospitals on-site.ASHS is exploring options in the freestanding center area, butwill take a cautious approach, Thomas said.

"It is a bit of a balancing act. The same people whowould be selling their physician partnerships can affect the revenuestream of what you would be purchasing. We don't want to diveinto anything. We will proceed cautiously, but look for opportunities,"she said.

The company is expanding in other new directions. Its firstMR center outside the country will open this month in London.ASHS has formed European Shared Medical Services, a wholly ownedsubsidiary, to run the MR site at the Royal National OrthopaedicHospital.

ASHS also initiated its first gamma knife project last monthat the University of California at San Francisco. The gamma knifesystem, manufactured by Elekta of Sweden, performs noninvasivebrain surgery using precisely directed radioisotope beams. MRIor CT imaging is used to identify and target the site.