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Center for Autism and Related Disorders, LLC – Autism Treatment Provider Controlled by Blackstone Files for Chapter 11 with Over $100mn of Debt & Lines Up $18mn of DIP Financing; Entity Affiliated with Founder Dr. Granpeesheh to Serve as Stalking Horse

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June 11, 2023 – Center for Autism and Related Disorders, LLC and four affiliated debtors (together “CARD” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case No. 23-90709 (Judge David R. Jones). The Debtors, "the nation's leading [autism] treatment provider with over 30 years of experience," are represented by Matthew D. Cavenaugh of Jackson Walker LLP. Further Board authorized appointments include: (i) Kirkland & Ellis as general bankruptcy counsel, (ii) Point Partners/Triple P RTS, LLC as restructuring advisor, with Portage Point's Steven Shenker to serve as Chief Restructuring Officer, (iii) Livingstone Partners LLC, as financial advisor and investment banker and (iv) Stretto, Inc. as claims agent.

Serving as advisors to presumptive stalking horse Dr. Granpeesheh and Pantogran LLC (an acquisition vehicle) are (i) Calex Partners*, for whom Dr. Granpeesheh serves as an advisor, set to serve as financial advisor, (ii) Nevers, Palazzo, Packard, Wildermuth & Wynner as legal advisor, and (iii) Locke Lord as bankruptcy and restructuring counsel.

* Describes itself as "a mergers and acquisition advisory firm…provid[ing] objective, strategic advice to market-leading healthcare services companies and financial sponsors in the autism, behavioral health, healthcare IT, and retail healthcare sectors."

The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $50.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn ($245.0mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Douglas Emmett 2000, LLC ($1.5mn lease claim), (ii) VWi Revenue Cycle Management, Inc. ($869k "AR & Billing Services" claim) and (iii) Coverall North America ($589k facility management claim).

In a press release announcing the filing, CARD provides: “the company has entered into an asset purchase agreement ('the APA') with Pantogran LLC, led by Dr. Doreen Granpeesheh, founder and former CEO of CARD, pursuant to which Pantogran LLC will acquire substantially all of CARD’s assets. Under the terms of the APA, Pantogran LLC will serve as the 'stalking horse bidder' in a court-supervised auction process. The company expects to move through this process on an expedited basis and complete the transaction within 60 days."

The Debtors' CEO, Jennifer Webster, added: "Today’s announcement is the culmination of a comprehensive process to strengthen our financial foundation while maintaining outstanding care for our patients and their families….Dr. Granpeesheh's interest in pursuing this transaction is a testament to the value of our centers, our team, and the services we provide. We believe this is currently the best path forward for our company and look forward to building on our strengths with Dr. Granpeesheh's strong support.” 

As noted below, the Debtors' are currently @70% owned by a Blackstone affiliate which acquired that interest in 2018. A further @21% is controlled by entities affiliated with Dr. Granpeesheh, the Debtors' founder and former CEO. Dr Granpeesheh gained some notoreity when she appeared in the film "Vaxxed" supporting the debunked theory that MMR vaccinations caused autism that could be cured by detoxification.

Restructuring Overview

The Disclosure Statement provides: "With the capital provided by the DIP Facility, the Debtors intend to utilize the chapter 11 process to bring their robust marketing process to completion, to consummate one or more asset sales, and to shed burdensome liabilities, while ensuring their top priority—their patients and workforce—are protected and provided for.

The key terms of the Debtors’ restructuring are as follows:

  • Marketing Process. The Debtors will continue their prepetition marketing process after the Petition Date and conduct an Auction to solicit bids for one or more Asset Sale(s) in accordance with the terms and conditions of the Bidding Procedures. The Debtors will seek to elicit one or more Asset Sale offers pursuant to the process set forth in the Bidding Procedures.
  • DIP Facility. The DIP Facility will provide new money in the form of an $18 million superpriority senior secured term loan, including $7.5 million to be made available upon entry of the interim order approving the DIP Motion, as well as certain “roll-up” DIP loans, as further described in the DIP Motion. The DIP facility’s new money will provide the Debtors with the necessary liquidity to continue operations and administer these chapter 11 cases while completing the ongoing sale process to maximize value.
  • Milestones. Prosecution of these cases in accordance with the following timeline (as consensually extended or amended in accordance with the terms of the Disclosure Statement Order, the Bidding Procedures, and the Final DIP Order:
    • entry of the Interim DIP Order on or before three days following the Petition Date;
    • entry of the Bidding Procedures Order on or before seven days following the Petition Date;
    • entry of the Final DIP Order on or before twenty eight days following the petition date;
    • entry of an order conditionally approving the Disclosure Statement and authorizing the Debtors to commence solicitation of votes to approve or reject the same (the “Disclosure Statement Order”) on or before June 12, 2023;
    • occurrence of deadline for the submission of qualified bids in respect of the Asset Sale(s) for substantially all of the Debtors’ assets on or before July 14, 2023, at 4:00 p.m., prevailing Central Time;
    • an auction (if necessary) pursuant to the Bidding Procedures Order on or before July 17, 2023, at 9:00 a.m., prevailing Central Time;
    • deadline for Objections to Approval of any Bid (including Back-Up Bids), including objections based on the manner in which the Auction was conducted and the identity of the Winning Bidder on or before July 19, 2023 at 4:00 p.m., prevailing Central Time; and
    • a hearing regarding approval of the Plan and the Disclosure Statement and entry of an order approving the Sale Transaction(s) for all or substantially all of the
    • Debtors’ assets (the “Sale Order”) on or before July 20, 2023, subject to Court availability."

The following is a summary of classes, claims, voting rights and expected recoveries defined terms are as defined in the Plan and/or Disclosure Statement, see also the Liquidation Analysis below):

  • Class 1 (“Other Secured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. Treatment: Each Holder of an Allowed Other Secured Claim shall receive, at the option of the applicable Debtor or Wind-Down Debtor: (i) payment in full in Cash; (ii) Reinstatement of such Claim; or (iii) such other treatment rendering such Claim Unimpaired.
  • Class 2 (“Other Priority Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. Treatment: Each Holder of an Allowed Other Priority Claim shall receive, at the option of the applicable Debtor or Wind-Down Debtor: (i) payment in full in Cash; or (ii) such other treatment rendering such Claim Unimpaired.
  • Class 3 (“Credit Facility Claims”) is impaired and entitled to vote on the Plan. Treatment: Each Holder of an Allowed Credit Facility Claim shall receive its Pro Rata share of the Distributable Asset Sale Proceeds and the Wind-Down Proceeds following payment in full in Cash of all Allowed Claims that are senior to Credit Facility Claims in priority of payment under the Bankruptcy Code; provided, however, that any portion of such Holder’s Allowed Credit Facility Claim that is not fully satisfied pursuant to provisions (A) and (B) immediately above, shall still constitute an Allowed Credit Facility Claim up to the value of any remaining Credit Facility Collateral; provided, further, that any portion of such Holder’s Allowed Credit Facility Claim that exceeds the value of such remaining Credit Facility Collateral (if any) shall constitute a Credit Facility Deficiency Claim and receive the treatment specified in Article III.B.4(b) of this Plan.
  • Class 4 (“General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. Treatment: Each Holder of General Unsecured Claim shall not receive or retain any distribution, property, or other value on account of such General Unsecured Claim.
  • Class 5 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Treatment: Subject to the Restructuring Transactions Memorandum, each Allowed Intercompany Claim shall be Reinstated, distributed, contributed, set off, settled, cancelled, and released, or otherwise addressed at the option of the Wind-Down Debtors; provided that no distributions shall be made on account of any Intercompany Claims.
  • Class 6 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Treatment: Subject to the Restructuring Transactions Memorandum, each Intercompany Interest shall be Reinstated, distributed, contributed, set off, settled, cancelled, and released, or otherwise addressed at the option of the Wind-Down Debtors.
  • Class 7 (“Existing Parent Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Treatment: On the Effective Date, and without the need for any further corporate or limited liability company action or approval of any board of directors, board of managers, members, shareholders, or officers of any Debtor or Wind-Down Debtor, as applicable, all Existing Parent Interests shall be cancelled, released, and extinguished without any distribution, and will be of no further force or effect, and each Holder of an Existing Parent Interest shall not receive or retain any distribution, property, or other value on account of such Existing Parent Interest.
  • Class 8 (“Section 510(b)”) is impaired, deemed to reject and not entitled to vote on the Plan. Treatment: On the Effective Date, all Section 510(b) Claims shall be discharged and released, and each Holder of a Section 510(b) Claim shall not receive or retain any distribution, property, or other value on account of its Section 510(b) Claim.

Definitions:

“Distributable Asset Sale Proceeds” means the Asset Sale Proceeds, less (i) the Wind-Down Budget, and (ii) in the case of an Asset Sale consummated with a Purchaser other than the Stalking Horse Bidder, the Bid Protection and Expense Reimbursement, in each case, payable pursuant to the terms of the Stalking Horse APA.

Stalking Horse Arrangements

In addition to the references in the press release above, the Debtors' lead Petition provides: "…the Company has negotiated and entered into that certain asset purchase agreement (including all exhibits and schedules related thereto, the “Stalking Horse Asset Purchase Agreement”) with Pantogran LLC (the “Stalking Horse Buyer”) to serve as the stalking horse for a marketing process for the sale of substantially all of the Company’s assets…"

Events Leading to the Chapter 11 Filings

In a declaration in support of first day filings (the “Shenker Declaration) [Docket No. 21], Stephen Shenker, the Debtors’ CRO commented: "Primarily due to the COVID-19 pandemic’s impact on in-person services and the labor supply, the Debtors have faced multiple challenges in the lead up to these chapter 11 cases. 

  • First, the COVID-19 pandemic led to tightening in the healthcare labor market and disrupted supply chains, and as a result, CARD’s costs for labor and supplies have ballooned. Despite the significant continued unmet demand, ongoing staffing shortages have prevented the Debtors from meeting such demand. 
  • Second, in light of the Debtors’ treatment-center business model, the Debtors are party to a number of burdensome lease obligations. Though the Debtors have been able to right-size their lease footprint and eliminate many of their significant lease obligations over the last twelve-months, historical lease costs put severe pressure on the Debtors’ liquidity. 
  • Third, reimbursement rates under previously negotiated payor contracts have not kept up with the higher cost of doing business
  • Fourth, CARD is facing several pending and threatened litigation actions, including serving as a defendant in a California class action; audits; and other informal proceedings that may result in financial liabilities. 
  • Fifth, compounded by these challenges, notwithstanding the Debtors great treatment success, the Debtors collected revenues below what it expected for years. Together, these circumstances have placed CARD in a position where it no longer has adequate liquidity to continue operations absent the liquidity available under the DIP Facility."

Prepetition Indebtedness

As of the Petition Date, the Debtors’ capital structure consists of outstanding funded-debt obligations in the aggregate principal amount of approximately $245.0mn, comprised of the following obligations:

DIP Financing

The press release provides: "In connection with the proposed sale transaction, CARD has received a commitment for approximately $18 million in new money debtor-in-possession ('DIP') financing [$7.5mn interim] from its existing secured lenders. Upon Court approval, this new financing, together with cash generated from the company’s ongoing operations, is expected to support the business throughout the sale process." The lead Petition adds: "….the incurrence of a $18 million senior secured superpriority debtor-in-possession financing facility…shall include a full 'roll up' of approximately $33.3 million in loans under the Company’s prepetition superpriority delayed draw term loan facility…"

Lease Termination Efforts

The Shenker Declaration provides: "…As of the Petition Date, the Company had successfully negotiated concessions totaling approximately $10 million. Right-sizing the lease footprint was an important facet of the Business Plan to ensure that the Debtors shed the leases for unprofitable centers. Since January 2022, the Debtors have reduced their treatment center footprint by approximately 92 locations. While the Debtors have been able to exit a number of leases in the lead up to these chapter 11 cases, not all of the landlords have been amenable to cancellation cost reductions."

Key Documents

The Disclosure Statement attached the following documents:

  • Exhibit A: Plan of Reorganization
  • Exhibit B: Restructuring Support Agreement
  • Exhibit C: Stalking Horse APA
  • Exhibit D: Corporate Organization Chart
  • Exhibit E: Liquidation Analysis

Significant Prepetition Shareholders

  • Cardinal Buyer, LLC (ie Blackstone): 69.9262%
  • Haftshance, LLC: 20.1452% (with an address at Dr. Granpeesheh's Florida home)
  • CARD Management, LLC: 7.9173%
  • Clover Fields Enterprises, LLC: 1.5400%
  • Doreen Granpeesheh Living Trust: 0.4713%

About the Debtors

According to the Debtors: “CARD was founded in 1990 and employs a dedicated team of exceptional clinicians across the nation. CARD treats individuals of all ages diagnosed with autism spectrum disorder (ASD) using the principles of applied behavior analysis (ABA), which is empirically proven to be the most effective method for treating individuals with ASD. CARD is committed to success for every individual it treats, so that each person can fulfill their maximum potential, find their own unique voice, and achieve happiness in life.“

Liquidation Analysis (see Exhibit E of Docket No. 17 for notes)

Organizational Structure

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The post Center for Autism and Related Disorders, LLC – Autism Treatment Provider Controlled by Blackstone Files for Chapter 11 with Over $100mn of Debt & Lines Up $18mn of DIP Financing; Entity Affiliated with Founder Dr. Granpeesheh to Serve as Stalking Horse appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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