21st Century Oncology’s 10-K report contains going-concern warning

By Angela McDaniels

Tacoma, Wash., Aug. 23 – 21st Century Oncology Holdings, Inc. said there is substantial doubt about its ability to continue as a going concern.

On Aug. 16, the company’s credit agreement was amended in connection with the lenders’ agreement to waive through Sept. 10 any default related to the company’s failure to provide audited annual financial statements for the year ended Dec. 31, 2015, without a going-concern warning.

The amended credit agreement and the indenture for the company’s senior notes require it to raise a certain amount of funds from stock sales or asset sales and to comply with a minimum liquidity covenant.

According to the company’s 10-K filing for 2015, which was filed with the Securities and Exchange Commission on Tuesday, the company is pursuing initiatives to satisfy these requirements but does not have firm commitments and may not be able to maintain the required levels of liquidity.

The failure to meet these requirements could result in an event of default and an acceleration of the company’s debt.

The company said it will need to identify alternative options if it is unable to meet the requirements. Such options could include a debt refinancing, a sale of the company or other strategic transaction or a possible restructuring or reorganization of the company’s operations.

In an effort to enhance liquidity above the required capital events, the company also is pursuing financing transactions.

As of July 31, the company had $40.5 million of cash.

More positively, the company is implementing cost saving initiatives and expects operating cash flow improvement to begin in the fourth quarter of 2016 and continue to improve in the first half of 2017 due to the seasonality of its business.

“As such we feel confident in our ability to meet our financial obligations over the next 12 months,” the company said in the 10-K filing.

Liquidity requirements

The credit agreement and the notes indenture require the company to receive

• By Sept. 10, at least $25 million of net cash proceeds from the sale of stock or from other equity investments;

• By Nov. 30, at least $25 million of additional net cash proceeds from the sale or stock or assets. The amount may be lesser than $25 million such that when combined with the proceeds from the first capital event, the total amount is not less than $50 million;

• By March 31, 2017, additional net cash proceeds from the sale of stock or assets in an aggregate amount of at least the lesser of (a) $75 million (or a lesser amount such that when combined with the proceeds from the first and second capital events, the total amount is not less than $125 million) and (b) an amount such that, after giving effect to such sale, the company’s cash and cash equivalents plus unused revolving loan commitments equals at least $120 million and its consolidated leverage ratio is not greater than 6.4 to 1.0.

The company is also required to comply with a minimum liquidity covenant in an amount not less than $40 million after the completion of the first capital event, to be tested monthly prior to the completion of the third capital event and quarterly thereafter.

21st Century Oncology is a Fort Myers, Fla.-based provider of integrated cancer care services.

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