Health Merger 'Milestone’

Oak Brook-based Advocate Health Care and Libertyville-based Condell Medical Center on Monday announced the signing of a nonbinding letter of intent as they continue merger talks.

The two nonprofit health care providers said in a statement that the letter “signifies a milestone in the exclusive talks” about a possible merger. No additional details were provided.

The two announced last month that they were in exclusive negotiations to merge. Advocate is the largest nonprofit system in Illinois and Condell operates a 258-bed hospital in a market far north of Chicago that Advocate would like to enter.

The merger would allow Condell to shore up its struggling finances and provide it access to capital funding, while allowing Advocate to extend its market reach without having to build a new facility. Advocate had been considering building a new $250 million hospital near Condell in Lake County.

Fitch Ratings late month said it would maintain the negative watch assigned to Condell’s BBB rating on $125 million of outstanding debt sold in 2002 and 2000. The hospital is struggling to turn around its finances.

The negative watch assigned last June reflects Condell’s failure to disclose its finances in a timely fashion, an extremely weak liquidity position, and the termination of Condell’s managed care contracts with Blue Cross Blue Shield of Illinois on Oct. 1, 2007.

The watch was assigned specifically in response to Condell’s announcement last year that it had completed an internal investigation that identified errors or misstatements in its previously issued financial statements.

Condell delayed the release of its fiscal 2006 results until December because of those problems, and Fitch analysts said they remain concerned because their “access to management as well as additional credit information has been limited.”

Condell has a Baa2 rating from Moody’s Investors Service. It is not rated by Standard & Poor’s.

Advocate’s nearly $800 million of debt is rated in the double-A category by all three agencies.

A merger would be the second this year involving an independent hospital. Loyola University Health System last month announced it would acquire Gottlieb Memorial Hospital.

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