Adeptus in bankruptcy to implement Deerfield Management collaboration

By Caroline Salls

Pittsburgh, April 20 – Adeptus Health Inc. filed Chapter 11 bankruptcy on April 19 in the U.S. Bankruptcy Court for the Northern District of Texas after entering a collaboration with Deerfield Management Co. and some of its other creditors on the terms of a comprehensive financial restructuring plan that is expected to significantly reduce the outstanding debt under Adeptus’ existing credit facility.

According to a news release, Adeptus’ wholly owned subsidiaries are included in the court-supervised restructuring process, but the joint venture entities to which Adeptus is a party are not part of the court-supervised process.

The company said all of its owned and joint-venture freestanding emergency rooms continue to operate as normal.

Restructuring terms

Through the restructuring, ownership of the company is expected to transition to Deerfield, which has been a long-term investor in Adeptus.

Adeptus said in an 8-K filed with the Securities and Exchange Commission that its debtor-in-possession lenders and the Deerfield parties will each receive their share of 100% of the new equity interests of Adeptus Health LLC, which will be name of the reorganized company.

All existing facility leases under an MPT master lease agreement will be assumed, and all cure amounts owed to the lessors will be paid.

Holders of lease rejection claims, medical malpractice claims and general unsecured claims will each receive their share of the net proceeds that are received by a litigation trust to be established under the plan for the purpose of prosecuting causes of action.

All existing equity interests in the company and Adeptus Health LLC will be cancelled without any payment to equityholders.

In addition, the company’s obligations under a tax receivable agreement (TRA) dated as of June 25, 2014 among the company and the persons named therein will be terminated on the earlier of the effective date and the effectiveness of any order of the bankruptcy court rejecting the TRA.

DIP financing

In conjunction with the bankruptcy filing, Adeptus received a commitment from Deerfield for $45 million in debtor-in-possession financing, which is expected to support the company’s operations during the court-supervised restructuring process.

Interest will accrue at a rate of 10%.

The facility will mature on the earliest of 90 days after the bankruptcy filing, the effective date of a Chapter 11 plan, the conversion of the Chapter 11 cases, dismissal of the Chapter 11 cases if the order does not call for payment in full of the loan obligations and the date of any acceleration of the loans.

A total of $22 million of the financing will be available to the company on an interim basis.

Upon completion of the restructuring, Deerfield is also expected to provide the company with additional funding, operational support and healthcare expertise.

“Our partnership with Deerfield and the actions we are taking today are intended to strengthen Adeptus and enable us to continue our mission of providing access to the highest-quality medical care to the communities we serve,” Adeptus chairman and interim chief executive officer Gregory W. Scott said in the release.

“Over the last several years, Adeptus has invested significantly to expand our facility footprint and respond to the growing demand for high-quality emergency medical care.

“While these investments have increased patient access, the associated expenditures have strained the company’s financial resources.”

Adeptus filed a number of customary motions seeking court approval to continue to support its business operations during the court-supervised process, including uninterrupted payment of employee wages and benefits. The company intends to pay vendors for goods and services provided after the filing date.

Debt details

According to documents filed with the court, Adeptus has $100 million to $500 million in both assets and debt.

The company’s largest unsecured creditors are Chandler Signs Holdings LLC of Dallas, with a $3.97 million trade vendor claim; Ascension Group Architects, LLP of Arlington, Texas, with a $1.54 million trade vendor claim; and Workplace Solutions, Inc. of Dallas, with a $1.04 million trade vendor claim.

The bankruptcy filing constituted an event of default under the company’s pre-bankruptcy credit agreement, under which there was $228 million outstanding as of April 18, as well as under the MPT master leases.

However, Adeptus said it believes that the ability of its creditors to enforce their default-related rights are stayed under the bankruptcy code.

The company said in the 8-K that its board of directors’ vice chairman Richard Covert resigned on April 17.

Norton Rose Fulbright US LLP serves as reorganization counsel to Adeptus, and FTI Consulting serves as financial adviser.

Based in Lewisville, Texas, Adeptus maintains a network of freestanding emergency rooms and partnerships with health care providers. The Chapter 11 case number is 17-31432.

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