September 18, 2023 –American Physician Partners, LLC* and 99 affiliated debtors (“American Physician Partners,” “APP,” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case No. 23-11469 (Judge TBA). The Brentwood, Tennessee-based Debtors, "providers of emergency medicine, hospital medicine, and critical care physician management services to hospitals and health systems nationwide," are represented by Laura Davis Jones of Pachulski Stang Ziehl & Jones LLP. Further Board authorized appointments include: (i) Bass Berry & Sims PLC as general bankruptcy counsel, (ii) John DiDonato of Huron Consulting Group to serve as CRO and (iii) Epiq Corporate Restructuring, LLC as claims agent.
* The Debtors are a portfolio company of Brown Brothers Harriman Capital Partners ("BBH") who acquired their controlling position as part of a 2017 recapitalization.
The Debtors’ lead petition notes between 10,000 and 25,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $500.0mn and $1.0bn ($589.6mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) R1 Medical Consultants Inc. ($23.9mn trade claim), (ii) Jefferies ($2.3mn trade claim) and (iii) Sapientes Funding II ($1.9mn "Purchase Agreement" claim).
Petition Date Highlights
- Brentwood, Tennessee-based Emergency Room Staffing Business, Controlled by Brown Brothers Harriman Capital Partners, Files for Bankruptcy with $589.6mn of Funded Debt and Over $40.0mn of Trade Debt
- As Did Envision Healthcare Corp. (Filed March 2023), Cites COVID, Inflation/Rising Costs and "Problematic" No Surprises Act
- Following Failed (but Agonizingly Close) Efforts at Refinancing and Going Concern Sale (and Subsequent Transitioning of Clinical Operations), Will Now Wind-Down
- Prepetition Lenders Led by Goldman Sachs Specialty Lending Group, L.P Left Deeply Impaired (Entitled to Proceed of Sold Collateral), General Unsecureds to Share $250k Pool, Equity to get Nothing
In a press release announcing the filing, the Debtors provided that they had sought bankruptcy protection "to complete the orderly wind down of its business affairs following the transition of its clinical operations….The Company is seeking Court approval to consensually use cash collateral to fund its orderly wind down during the Chapter 11 cases. The Company intends to seek confirmation of a Plan of Liquidation by the Court to complete an orderly and efficient wind down of its business affairs. "
The press release continues: "Effective July 31, 2023, the Company had transitioned all its clients to other strategic emergency medicine companies or insourced with the respective hospitals or health systems….APP filed for Chapter 11 after careful consideration and in consultation with management, advisors, and the Board….APP’s management team has made an extraordinary effort to focus on patient care above all else and advocate for the valued team serving its patients and supporting clinicians, while navigating financial challenges and difficult market conditions."
As noted below, the Debtors ultimately failed to refinance $520.0mn of debt which matured at the end of 2021, largely surviving since then at the discretion of those lenders ["on December 9, 2022, the Prepetition Secured Parties exercised their proxy rights and appointed an independent Board of Managers over APP"]; first still hoping that a some sort of refinancing, equity infusion or sale would leave that $520.0mn (now $589.6mn) less exposed and then, with those hopes dashed, while the Debtors transitioned clinical operations.
The Debtors follow in the bankruptcy footsteps of (much larger) emergency room staffing competitor Envision Healthcare Corp., which filed in May 2023 with over $10.0bn of debt (see our separate coverage, including as to their recently delayed Plan confirmation hearing). At filing, Envision noted as to its own need to seek bankruptcy shelter that it had "experienced declining profitability since 2019 primarily as a result of the impact of COVID-19, clinical labor costs, and the impact of inflation on the cost of goods and services….These challenges have been exacerbated by significant changes to the regulatory landscape since the flawed implementation of the No Surprises Act and related payor activism.”
As detaileded in "Events.." below, the Debtors are now providing a similar narrative as to their slide into bankruptcy, albeit one, unlike Envision's (which includes going concern expectations for part of its business) that envisages a quick liquidation/wind-down.
Liquidation Plan Overview
The Debtors' Combined Plan of Liquidation and Disclosure Statement (the "Combined Document") [Docket No. 17] provides: "The Plan provides for, as of the Effective Date, a Liquidating Trust to liquidate, collect, sell, or otherwise dispose of the remaining assets of the Debtors’ estates (the “Estates”) (including, without limitation, certain causes of action), if and to the extent such assets were not previously monetized to Cash or otherwise transferred or disposed of by the Debtors prior to the Effective Date, and to distribute all net proceeds to Creditors generally in accordance with the priority scheme under the Bankruptcy Code other than the GUC Fund which shall be for the benefit of general unsecured creditors subject to the terms of the Plan and Liquidating Trust Agreement.
There will be no distributions to Holders of Interests. As of the Effective Date, the Liquidating Trust will be funded with all the remaining assets of the Debtors (referred to herein as Distributable Assets) (except for certain carveouts including the Professional Fee Reserve). In particular, under the Plan, there will be a $250,000 GUC Fund, to be used to fund Distributions to general unsecured creditors and only in the case of certain circumstances administrative costs of the Liquidating Trust, with the consent and agreement of the Debtors’ Prepetition Lenders."
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “DiDonato Declaration), DiDonato, the Debtors’ CRO commented: “The Debtors materially underperformed their projected financial performance in 2022 and early 2023 due to various circumstances including (i) actual collections per patient visit being materially lower than originally anticipated, (ii) lowered stipend revenues, (iii) greater than expected outsourced clinical team utilization (i.e., locums), (iv) unanticipated increases in costs, including the costs associated with restructuring and insurance, and (v) an infrastructure that had been built from outsourcing key functions including revenue cycle management.
Broadly, the COVID-19 pandemic resulted in a general worsening of economic conditions, which placed significant pressure on hospital and health system budgets, which impacted APP’s revenue from hospital stipends. Further, budget deficits at federal, state and local government entities have had a negative impact on spending for many health and human service programs, including Medicare, Medicaid and similar programs.
Notably, during the last couple of years, the Company faced strong and unique regulatory headwinds. At the end of 2020, as COVID vaccines were being rolled out and the response to the pandemic became more controlled, Congress passed the No Surprises Act, which ended the practice of 'balance billing' (sometimes
referred to as 'surprise medical billing') – the practice of billing patients directly when health insurers underpay or refuse to pay the full cost of delivering care. The Company supported the patient protections in the No Surprises Act legislation and, as a policy, did not engage in the practice of balance billing. Although the legislative policy behind the No Surprises Act is sound, the regulatory implementation of the No Surprises Act was problematic, effectively shifting the
balance of power in payment disputes too far in the favor of insurance companies (payors) and enabling them to significantly delay and unilaterally reduce or deny payments. Of the eligible claims the Company submitted through the independent dispute resolution process, only a small portion has been resolved, and of those that were resolved, many remain unpaid by health insurers.
The Company also had to deal with other adverse financial factors – rising labor costs and inflationary pressures. The COVID-19 pandemic left in its wake a nationwide health care labor shortage, directly affecting the healthcare services sector, as many part-time and retirement-age healthcare professionals exited the workforce and as the turnover rate substantially increased. All this created significant upward pressure on such professionals’ wages and salaries, in addition to forcing the Company’s locum usage to materially increase, which in turn significantly increased labor costs. In certain markets, the competition for providers was intense, and the Company was required to raise hourly rates as well as offer signing bonuses. Moreover, inflationary pressures had increased the cost of equipment and other supplies necessary to run the Company’s owned or managed sites."
Failed Efforts to Refinance/Sell
The DiDonato Declaration continues: "The COVID-19 pandemic (commencing in early 2020) produced significant industry challenges and placed significant pressure on the Company’s operations and liquidity.
In this difficult setting, in 2022 and onward, the Debtors (advised by Jefferies Investment Banking) sought over a protracted period a replacement financing and restructuring events with Goldman Sachs Specialty Lending Group, L.P., the Prepetition Agent for the Prepetition Lenders…that were ultimately unsuccessful….Credit agreement amendments and forbearances were agreed to by the parties, and a restructuring support agreement and a restructuring term sheet were executed by the Debtors, the Prepetition Agent, and certain Prepetition Lenders. However…the parties were unable to reach any consensual resolution, and the Debtors were forced to explore alternative strategies, including a potential sale of substantially all the Debtors’ service contracts and other assets. Such efforts by the Debtors proved to be unsuccessful, with the Debtors unable to come to agreement with any potential buyer in the prepetition period, despite extensive negotiations."
The Debtors got frustratingly close to pulling off a refinancing with DiDonato noting: "On January 30, 2023, the Debtors, the Prepetition Agent, and the Prepetition Lenders entered a Restructuring Term Sheet, pursuant to which the parties contemplated a restructuring transaction whereby, inter alia, the Prepetition Lenders would receive 100% of the equity of the reorganized entity and provide a replacement credit facility. Subsequently, the parties entered into a Restructuring Support Agreement dated as of March 2, 2023 (the 'RSA'), which contemplated a debt-to-equity swap and established a fresh credit facility which provided new money to the business. Notwithstanding the foregoing, the Debtors were unable to reach a consensual resolution with the Prepetition Agent and the Prepetition Lenders due in part to the Debtors’ continued cash consumption."
Following a June 9th notice from prepetition lenders that they would not be providing further financing, the Debtors embarked on a frantic sale effort which again got frustratingly close. DiDonato picks up the story: "…in early June 2023, the Company’s management, CRO team and Board of Managers immediately began pursuing strategic options….A confidential teaser was sent to eight potential strategic partners, of which five executed non-disclosure agreements (each an “NDA”). For those parties that executed NDAs, access was provided to a virtual data room so those parties could review confidential financial and operational diligence materials.
After feverish negotiations, the Company executed a Letter of Intent ('LOI') with a potential buyer (“Prior Potential Buyer”), in late June 2023, through which the potential buyer indicated that it would transition the medical service contracts of substantially all of the Company’s healthcare/hospital client partners, satisfy APP’s clinical team providers and extend medical malpractice insurance for clinicians, including prior acts medical malpractice insurance, and keep almost all of the Company’s Support Center employees. At the time, the LOI was viewed as a significant accomplishment which would provide continuity for all stakeholders and minimize disruption of patient care for healthcare/hospital partners….The team worked tirelessly to reach an agreement, but unfortunately, Prior Potential Buyer retracted its commitments regarding assuming contracts, providing wages, and offering medical malpractice insurance, and required an unacceptable level of conditions be met to close the deal. Thus, a value maximizing transaction that provided the necessary continuity could not be reached…."
- Secured Debt. The Debtors are party to a December 2016 Amended and Restated Credit and Guaranty Agreement (the “Prepetition Credit Agreement”) with Goldman Sachs Specialty Lending Group, L.P. as the administrative agent. Under the associated Prepetition Secured Facility, Prepetition Lenders provided term loans in the aggregate principal amount of up to $589,608,740 as of August 31, 2023, with that figure comprised of (i) $570,108,740.35 of term loans and (ii) $19,500,000 of revolver loans.
- Unsecured Trade Debt. As of the Petition date, the Debtors estimate they owe approximately $40.0mn in trade debt, staffing related claims, and other accounts payable, which figure excludes potentially substantial additional amounts of other contingent or unliquidated unsecured claims (including provider insurance and patient related claims), which may total in the millions of dollars.
About the Debtors
According to the Debtors [NB: The Debtors have effectively taken down their website]: “Headquartered in Brentwood, Tennessee, American Physician Partners was founded in 2015 to provide a better alternative to hospitals and healthcare systems for their clinical outsourcing needs. Since its inception, the company grew to more than 160 practice sites and became a recognized leader in the provision of exceptional emergency medicine, hospital medicine, and critical care management services to hospitals and healthcare systems nationwide. APP earned its extensive growth by remaining true to its mission to support its providers and hospital partners in providing safe, compassionate, and efficient care to every patient, every time.
Corporate Structure (filed with Docket No. 18)
American Physician Partners, LLC (APP), a Delaware limited liability company, is either the ultimate parent of the other Debtors or otherwise directly or indirectly (through other Debtors) manages the business and operations of the other Debtors. All the common equity units of APP are held by non-Debtor APP Holdco, LLC; preferred equity units are held by CPV APP Blocker, Inc and BBH.
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The post American Physician Partners, LLC – As Flagged at End of July, Emergency Room Staffing Company Files for Bankruptcy with $589.6mn of Funded Debt and $40.0mn of Trade Debt, Cites COVID, Inflation/Rising Costs and “Problematic” No Surprises Act appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.