Pipeline Health makes pre-packaged Chapter 11 bankruptcy filing

By Sarah Lizee

Olympia, Wash., Oct. 3 – Pipeline Health System, LLC filed Chapter 11 bankruptcy on Sunday in the U.S. Bankruptcy Court for the Southern District of Texas.

The company said it has faced significant headwinds since 2020, largely because of the changing health trends related to the global Covid-19 pandemic and compounded by various operational challenges.

Pipeline said its Illinois facilities have required significant working capital and have posted large financial losses since they were acquired. Before filing the Chapter 11 cases, the debtors negotiated a sale of the Illinois facilities to Ramco Healthcare Holdings, LLC, who in turn planned to lease the premises to Resilience Health to continue operations.

Ramco agreed to purchase the Illinois facilities’ underlying real estate for $92 million. In addition, Resilience agreed to take the equity interests in the entities operating the Illinois facilities under a membership-interest purchase agreement in exchange for the assumption of liabilities.

In the following weeks, however, the buyers indicated they were not able to close by the Aug. 30 deadline, and they terminated the asset purchase agreement.

Had the sale closed, it would have materially increased the debtors’ liquidity, bringing in $92 million and relieving the company’s Texas and California operations from continued subsidization of significant Illinois operating losses, Pipeline said.

Bid procedures

The company said it is continuing to engage in negotiations with Ramco regarding the sale, as well as engaging with other potential buyers.

Pipeline filed bid procedures with the court that provide a longer runway for its California and Texas assets, and a faster timeline for the Illinois assets.

Under the proposed bid procedures, the deadline for Illinois-only bids is 5 p.m. ET on Oct. 21, and the Illinois auction would take place on Oct. 26. The deadline for any other bids would be 5 p.m. ET on Dec. 5, and an auction would take place on Dec. 9.

A sale hearing would take place on Dec. 20.

The company is seeking approval to choose one or more stalking horse bidders for the assets.

DIP financing

Pipeline said that after “hard-fought” negotiations, it secured commitments for a roughly $110 million superpriority senior secured debtor-in-possession financing facility with Deerfield Private Design Fund IV, LP and DKLDO IV Trading Subsidiary LP as lenders.

The DIP facility will provide $40 million in new cash for the debtors and an about $70 million roll-up of term loans.

The DIP financing is set to mature in 35 days and bear interest at 10%.

Creditor treatment under plan

Under the pre-packaged Chapter 11 plan, term loan lenders will either receive reorganized equity or the debtors’ assets through a credit bid.

Holders of other secured claims will receive payment in full in cash, reinstatement of their claims, or other treatment leaving the claims unimpaired.

Holders of other priority claims will receive payment in full in cash or other treatment leaving the claims unimpaired.

If an equitization restructuring occurs, holders of asset-based lending facility claims will receive their pro rata share of an exit facility. If an asset sale restructuring occurs, they’ll receive either a pro rata share of the exit facility or a pro rata share of the debtor’s remaining cash after payment in full of senior claims.

If the equitization restructuring occurs, general unsecured claims will be discharged and released with no distribution. If an asset sale restructuring occurs and there are any excess sale proceeds, holders will receive a pro rata share of those proceeds.

Holders of intercompany claims will receive no distribution.

Intercompany interests will be reinstated, distributed, contributed, set off, settled, canceled and released, or otherwise addressed.

All existing parent interests will be canceled without any distribution.

Holders of section 510(b) claims will receive no distributions.

Other details

In its petition, the company listed $500 million to $1 billion in assets and $500 million to $1 billion in liabilities.

Its largest unsecured creditors are ShiftWise Inc., based in San Diego, with a $13.05 million staffing agency claim, the Centers for Medicare & Medicaid Services, based in Baltimore, with an $11.05 million governmental programs claim, the California Department of Health Care Services, based in Sacramento, with an $11 million governmental programs claim, Medline Industries Inc., based in Northfield, Ill., with a $6 million trade claim, the Illinois Department of Revenue, based in Springfield, Ill., with a $4.46 million taxes claim, Cerner Corp., based in Kansas City, Mo., with a $4.2 million trade claim, and AMP Staffing Network, based in Cerritos, Calif., with a $2.05 million staffing agency claim.

Kirkland & Ellis LLP is the debtors’ proposed counsel.

Pipeline Health System is an El Segundo, Calif.-based community-focused health care network. It filed bankruptcy under Chapter 11 case number 22-90291.

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