Spheris boss details company's woes

Affidavit: Company faces Indian tax hit, 'cannot endure a prolonged stay in chapter 11'

An affidavit filed in conjunction with Spheris' bankruptcy filing today sheds some light on what's been happening behind the scenes at the troubled medical transcription company, which has found potential buyers.
In the filing, Robert Butler, who has been working with Spheris since November, details "the Debtors' liquidity difficulties" and "eroding financial performance" that led it to skip an interest payment and a likely violation of some covenants of its senior credit agreement.
Accordingly, the company hired investment banking firm Jefferies & Co. to pursue the sale of its assets. Jefferies pitched more than 45 potential buyers, but the joint deal bid of CBay Inc. and MedQuist was judged to be the best offer.
Other interesting tidbits from the affidavit include:
"Competitors have been casting doubts on the company's viability" to its largest clients, who are likely to jump ship should Spheris' restructuring take a while.
Spheris employs about 4,200 medical transcriptionists worldwide, with its Indian operations providing about 35 percent of its services to customers.
The company is expecting a $2 million bill from India's tax authorities soon that, if not "satisfied immediately," could result in the Indian government shuttering its operations there."If Spheris India were to cease operating for even a couple of days, the result would be disastrous" to the company as a whole, Butler said. His team is seeking the court's permission to pay the taxes from its U.S. bank accounts.
Spheris "cannot endure a prolonged stay in chapter 11" without "significant risk" to its survival and its proposed debtor-in-possession lenders are unwilling to back a drawn-out process.
The company's four executives have employment agreements, with each earning an average annual salary of $210,000 excluding bonuses and other incentive compensation.
Its two-week payroll bill comes to $2.7 million.
As of Jan. 31, the company had about $75.6 million in pre-petition loans outstanding, including interest. Its senior credit agreement dates to July 2007.
It owes another $133.6 million on the bonds it issued in 2004. Those bonds (Ticker: SPYS.GB) fell to $17 from $48 this afternoon and now yield more than 110 percent. They were issued in the spring of 2006 with an interest rate of 11 percent.
As of Dec. 31, the company estimates it had $115 million in federal tax net operating loss carryforwards, a "valuable" asset that could be used to offset future profits. As of June 30 of last year, that number was $104 million.