Sierra units downgraded; Las Vegas firm gains $26 million from federal government

Sierra Health Services Inc. of Las Vegas announced Thursday it has received a $26 million payment from the federal government, funds which were primarily used to help reduce the company's debt load.

The $26 million was received as part of a price adjustment related to Sierra's contract to offer health care services to military personnel in the northeastern United States. The payments are received when costs are higher than anticipated during the bidding process. The company had already accounted for the pending payment under accounts receivable.

Sierra, the largest Nevada health insurer, said it used $20 million of the funds to reduce its debt load. Sierra now has about $160 million in outstanding debt, said spokesman Peter O'Neill.

"Our debt-to-equity ratio is about 45 percent, about where we were a year ago," O'Neill said. "Our debt went up with the financing of our acquisition (of Kaiser Permanente's HMO) in Texas. This brings us back to where we were and we're very pleased with that."

Despite the $20 million debt reduction, Duff & Phelps Credit Rating Co. downgraded its ratings on three Sierra subsidiaries, saying the company's financial performance in Texas was "significantly less than expected."

"The expected reduction in financial leverage following the acquisition, which was largely debt financed, has not taken place," Duff & Phelps' report said. "DCR is concerned about the level of debt in (Sierra's) capital structure and the impact on (Sierra's) financial flexibility."

The report did note the debt reduction, saying it expected Sierra's debt to continue to decline through 2000.

Sierra stock fell 25 cents Thursday to $5.75.

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