Thursday, August 26, 2010

Bad Company

There’s a small town in Ohio, named Dublin, after the famous city in Ireland. Commonly depicted as ‘gentrified modern,’ which is a quaint way of describing gold courses, strip malls and multi-plex theaters, Dublin – the one in Ohio, not the other one – is headquarters for Wendy’s International. Most people have heard of the hamburger chain. What they haven’t heard of is another big firm in the same city.

National Century Financial Enterprises. Started in 1991, this outfit soon became the nation’s largest purchaser of hospital, physician and other health care receivables. The buying up of receivables works like this. NCFE buys the accounts receivable of small hospitals, medical clinics and nursing homes. Because of their small sizes, all of these health-care providers are having money problems. They are desperate because they have no money with which to operate, because they have to wait for payment from insurance companies.

National Century steps in, giving them cash to cover their expenses so they can stay in business. The health-care providers win because they don’t have to wait for insurance companies to pay them. They get most of their money now, and don’t have to mess with the frustrating job of dealing with stingy insurance companies.

National Century wins because they keep a fee or percentage of any money they collect from the insurance companies. Then NCFE puts all the accounts they bought into a kitty and sells them in the form of asset-backed securities to huge institutional investors like money market funds, or retirement funds.

Over the course of 11 years, National Century purchased $15 billion in account receivables. They securitized them, which means they sold bonds to raise more capital so they could buy even more receivables and their partner in turning receivables into securities on Wall Street was Credit Suisse First Boston.

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