Distressed Debt Investors See More Health Care Opportunities

NEW YORK, Feb. 14 (LPC) – Distressed debt fund managers in the United States tout investment opportunities in healthcare as increased competition and aging infrastructure hurt business capacity to service their debt.

Ancillary service providers, including diagnostic companies and retirement homes, are expected to face an increase in defaults and Chapter 11 protection deposits as falling profits hamper their ability to invest and modernizing homes and keeping up with competitors, sources close to the industry said.

Yield-hungry investors drawn to real estate value or corporate asset collateral are entering the industry, which, after consumer goods and retailers, appears to be the next frontier when it comes to recovering cash. assets in difficulty.

“Distressed investors are quickly turning to (health services) opportunities because there is an overabundance of capital and competition (for assets),” said a restructuring advisor. “Healthcare acquisitions offer investors a way to capitalize on companies that haven’t been able to invest in their facilities. “

The drop in the patient occupancy rate, in particular in assisted living facilities, is also putting pressure on the healthcare sector. Future occupants are opting for personalized home care due to deteriorating senior care facilities, while healthcare professionals are increasingly open to offering their services beyond the confines of a single facility .

“Some of these facilities are struggling with poor management and maintenance capabilities,” said a bankruptcy lawyer. “So of course home care is a good option.”


Trident Holding, which provides diagnostics in assisted living facilities, is the latest to feel the pinch in an industry marked by cash flow constraints.

The medical services company filed for bankruptcy on Feb.11, citing financial stress since losing business from key clients such as post-acute care, assisted living facilities and correctional centers which are also paralyzed.

Trident, which has approximately US $ 219.7 million in senior debt outstanding, is also seeking up to US $ 50 million in debtor-in-charge (DIP) financing through a new two-draw term loan from the Silver Point Capital hedge fund. The DIP loan matures in July 2019 and is earning 800bp above the Libor, according to court documents.

In return, the fund is expected to recover equity from Trident and return to the operations of the nascent diagnostics provider.

“When it comes to turnaround plans, healthcare is on par with other consumer-centric product offerings like retail, and offers struggling investors a good chance to claw back yield or collateral “said the restructuring advisor.

Emergency center operator Legacy Holdings, for example, sold six healthcare facilities in November in a court-overseen asset sale that was part of a bankruptcy case filed in July. last year, according to documents filed with the US Bankruptcy Court for the Southern District. from Texas.

Legacy, which operates Neighbors’ branded emergency centers, blamed its woes on increased competition and lamented that it had grown prematurely with new centers in “less favorable locations,” including in areas rural Texas, the company said in court documents.

Atrium Health, an assisted living operator in Wisconsin and Michigan, went further, bypassing bankruptcy for a discount sale last September. The company began shutting down facilities in the Midwest in January after choosing not to repay more than $ 13.5 million in debt owed when it filed for bankruptcy.

The financial pressure has also spread to the hospital space, according to the report on signs of distress from the law firm Polsinelli.

The indices, which are based on Chapter 11 filings for companies with more than $ 1 million in assets, show more than 20 hospitals filed for bankruptcy protection between 2016 and the end of the third. quarter of last year.

Bankruptcy filings are down 53% overall since indexes started keeping records in 2010. However, healthcare-related distress has risen by a stunning 305%, the report found. (Reporting by Aaron Weinman. Editing by Michelle Sierra and Lynn Adler)

Carol M. Barragan