July 21, 2023 – Further to a June 16th bidding procedures order [Docket No. 134] and an auction held on July 17th, the Debtors notified the Court that they had selected the "bid package submitted by Pantogran LLC in conjunction with SH Varsity Acquisition Sub, LLC, Your Life ABA VA, LLC, Proud Moments MSO, LLC, and Proud Moments Licensed Behavior Analysts PLLC (together, the “Consortium”) for an aggregate purchase price of $48,477,026 as the Successful Bidder for substantially all of the Debtors' assets. The June 9, 2023 Pantogran LLC stalking horse asset purchase agreement is filed at Docket No. 134. This does not, however, appear to be the controlling sale document, given that the successful bidder notice notes that "Consortium" is "as defined in the Consortium Asset Purchase Agreement" with no such reference/definition appearing in the June 9th APA.
Pantogran LLC is an entity owned by Dr. Doreen Granpeesheh, the Debtors’ founder who sold the business to Blackstone in 2018 for a reported $600.0mn. Nice background from Forbes on Dr. Granpeesheh here.
A consortium fronted by Behavior Frontiers, LLC (joined as was the Pantogram LLC consortium by SH Varsity Acquisition Sub, LLC, Your Life ABA VA, LLC, Proud Moments MSO, LLC, and Proud Moments Licensed Behavior Analysts PLLC) was named as back-up bidder.
A sale hearing and Plan confirmation formerly scheduled for July 19th is now set for July 26, 2023 (see notice of reset hearing at Docket No. 222).
On June 11, 2023, Center for Autism and Related Disorders, LLC and four affiliated debtors (together “CARD“ or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $50.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn ($245.0mn of funded debt). At filing, the Debtors, “the nation’s leading [autism] treatment provider with over 30 years of experience,” cited a COVID-driven "ballooning" of labor and supply costs; burdensome lease obligations; failure of reimbursement rates to keep up with costs; litigation costs and revenue collection issues.
In a June 11th press release announcing the Chapter 11 filings, 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."
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.
On June 12th, the Court hearing Debtors' cases issued an order approving: (i) the Debtors’ Disclosure Statement (conditionally), (ii) proposed Plan solicitation and voting procedures and (iii) a timetable culminating in a July 19th Plan confirmation (and sale) hearing [Docket No. 85, NB hearing now scheduled for July 26th].
On July 6th, the Court hearing the Center for Autism and Related Disorders, LLC cases issued an order authorizing the Debtors to: (i) access the $10.5mn balance, of what is in total $18.0mn of new money, debtor-in-possession (“DIP”) financing being provided by prepetition first lien lenders (the “DIP Lenders,” led by agent Ares Capital Corporation), and (ii) roll up a further $23.5mn of prepetition first lien debt on a dollar-for-dollar basis. With a June 12th interim DIP order, the Court had previously authorized the Debtors to access $7.5mn in new money DIP financing and rolled up an equivalent $7.5mn of prepetition first lien debt.
Key Terms of the Stalking Horse APA
- Card Holdings, LLC a Delaware limited liability company (“Holdings”)
- Card Intermediate Holdings I, LLC
- Card Intermediate Holdings II, LLC
- Center for Autism and Related Disorders, LLC
- SKILLS Global, LLC
- Purchaser: Pantogran LLC, an entity owned by Dr. Doreen Granpeesheh, the Debtors’ founder Doreen Granpeesheh
- Doreen Granpeesheh (“Granpeesheh”)
- Sangam Pant (“Pant”)
- Purchase Price: The June 9th APA, not yet updated to reflect the auction results, notes that "the aggregate consideration (collectively, the “Purchase Price”) to be paid by Purchaser for the purchase of the Acquired Assets shall be: (i) the assumption of Assumed Liabilities and (ii) a cash payment of $25,000,000 (the “Cash Payment”). The notice of successful bidder notes consideration valued at $48.5mn.
- Deposit: $2,500,000.
- Bid Protections: (i) a $750k break-up fee and (ii) an expense reimbursement up to $350k.
The Bidding Procedures Motion
The motion [Docket No. 69] states, “While every company seeks to minimize operational disruptions as a result of financial distress, CARD, as a key service provider to the ASD community, felt a deep responsibility to ensure consistency and quality in patient care notwithstanding business headwinds. In furtherance of the companion goals of ensuring continuity in patient care and maintaining their talented workforce, the Debtors have been actively exploring a variety of strategic alternatives including a potential sale, strategic merger, consolidation, or business combination since October 2022. The Debtors hired Livingstone Partners LLC (‘Livingstone’) to commence a full marketing and sale process.
….the Debtors’ robust prepetition marketing process provided a head start on a potential transaction, paving the way for an expeditious in-court process to advance the Debtors’ prepetition efforts and ensure that the Debtors receive the highest or otherwise best offer(s) for their assets. This Motion requests a month-long process to close out any remaining leads from the Debtors’ prepetition marketing process, solicit final bids, and effectuate an orderly transition of the Debtors’ business to the Stalking Horse Bidder if no better offer arises.
Despite the length and fulsome prepetition marketing process already conducted, the Bidding Procedures will allow the Debtors to conduct a postpetition ‘market check’ of the Stalking Horse Bid to ensure that the Debtors obtain the highest or otherwise best offer, or combination of offers, for the sale of their business or some or all of their assets. The Debtors’ Joint Chapter 11 Plan of Reorganization…filed concurrently with this Motion, provides for a sale of the Debtors’ assets to the Stalking Horse Bidder or, in the event that the postpetition marketing process yields a more value-maximizing sale of the Debtors’ assets, the Winning Bidder. The proposed process will maximize the value of the Debtors’ estates for the benefit of all parties in interest by allowing the Debtors to complete their marketing process with minimal additional administrative costs, while protecting against disruption to patient care.
…The Debtors seek approval of the Bidding Procedures to ensure that the Debtors obtain the highest or otherwise best offer or combination of offers for the Assets, have sufficient time to receive and evaluate bids, hold an Auction, if necessary, and prepare documentation to effectuate one or more sale(s) of the Assets. The Bidding Procedures and relief requested in this Motion are in the best interests of the Debtors’ estates and their stakeholders.”
In a declaration in support of bidding procedures [Docket No. 70], Debtors’ investment banker Livingstone Partners provides, “In November 2022, the Debtors, with the assistance of Livingstone, commenced a marketing process to solicit interest for the sale of the Debtors’ entire business, or subsets of the Debtors’ clinics. Livingstone reached out to 58 potential strategic and financial buyers; all of which either have a platform investment in the behavioral health space or a stated interest in acquiring a business in the behavioral space. Fifty of the interested parties entered into confidentiality agreements with the Debtors. Parties who executed a confidentiality agreement received significant financial, operational and legal diligence information, including a confidential information presentation (CIP) and detailed financial model. In addition, potential buyers were offered the opportunity to participate in telephone conferences with the Debtors’ management team as well as to request additional due diligence information. In early January 2023, Livingstone had received 13 indications of interest from potential buyers and the Debtors’ management team hosted virtual management presentations with ten of those interested parties. Livingstone received five letters of intent by the end of January 2023.
Ultimately, on March 13, 2023, the Debtors selected the bid from a bidder (the “Exclusive Bidder”) and executed an exclusivity agreement which the Exclusive Bidder. The bid from the Exclusive Bidder contemplated the sale of the Debtors’ entire business and conditioned such bid on the consummation of the sale through an out-of-court process.
In late April 2023, the Exclusive Bidder unexpectedly amended the terms of its bid, reducing the purchase price significantly and indicating that it was only willing to act as a stalking horse for an in-court sale process. Two and a half weeks later and after exclusivity expired, the Exclusive Bidder further reduced its bid. The Debtors, in consultation with their advisors, deemed the revised bid from the Exclusive Bidder as unactionable and reopened the sale process by reengaging with interested parties from the initial phase of the marketing process.
The Debtors engaged in extensive negotiations with several interested parties that spanned approximately five weeks. Livingstone worked with each interested party to answer numerous requests for additional information, coordinated telephonic meetings with the Debtors’ management team and facilitated meaningful third-party due diligence. The Debtors requested that interested parties submit stalking horse proposals for the sale of all or part of the Debtors’ business by June 6, 2023.
The Debtors’ reengagement with interested parties bore fruit and yielded several proposals. When analyzing proposals received from interested parties, the Debtors and their advisors considered the risks and benefits associated with each proposed transaction, including overall value delivered, timing considerations, and execution risks. After deliberation, the Debtors selected the Stalking Horse Bid for the sale of substantially all of the Debtors’ assets. Pursuant to the Stalking Horse Agreement, and in the absence of any topping bids received in the continuing marketing process and auction, an entity owned by Dr. Doreen Granpeesheh, the Debtors’ founder, will purchase the entirety of the Debtors’ business and continue to operate the Debtors’ current footprint of treatment facilities.”
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."
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.“
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