KKR-backed Envision Healthcare considers bankruptcy

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Envision Healthcare Corp. has hired restructuring advisers and is contemplating a bankruptcy filing after the Covid-19 pandemic halted elective surgeries and left the company struggling to manage the $7 billion of debt from its 2018 leveraged buyout, according to people with knowledge of the matter.

The KKR & Co.-backed company, one of the largest physician staffing firms in the U.S., has already been holding back pay for doctors, and it has struggled to convince its bondholders to take a haircut in exchange for a new loan that would pare its debt load.

The company recently hired law firm Kirkland & Ellis LLP, and KKR is working with lawyers at Paul Weiss Rifkind Wharton & Garrison LLP to advise on Envision’s restructuring options, including a potential Chapter 11 filing, said the people, who asked not to be identified because the discussions are private. Investment bank Houlihan Lokey Inc. was also tapped for advice, the people said.

The situation remains fluid and plans could change, depending on market conditions and the length of the shutdown of the company’s businesses, the people said.

Representatives for Nashville, Tennessee-based Envision, KKR and Houlihan declined to comment, while spokespeople for Kirkland and Paul Weiss didn’t immediately comment.

Envision’s debt has been trading at deeply distressed levels. Its $1.23 billion of unsecured bonds due 2026 traded last week for less than 30 cents on the dollar, according to the Trace bond-price reporting system.

The company’s lenders have also engaged advisers of their own to begin talks with the company, the people said. Certain holders of its term loans are working with lawyers at Akin Gump Strauss Hauer & Feld LLP and investment bank Guggenheim Securities, they said.

A representative for Guggenheim declined to comment while Akin Gump didn’t immediately respond to requests for comment.

The pandemic has forced patients to avoid hospitals and forgo elective surgeries, which are more lucrative for health-care providers than emergency services typically related to treatment for Covid-19. In just two weeks, Envision’s business shrank by 65% to 75% at its 168 open ambulatory surgical centers, compared with the same period last year, Bloomberg reported last month.

Envision said at the time that it may need additional financing if conditions worsen. It reported $650 million in cash on its balance sheet at the end of March, $175 million of which is restricted from corporate use.

The company sought to ease its debt load with a proposal for bondholders to swap $1.2 billion of unsecured notes at a discount for a new term loan with higher priority and an earlier due date. But just $198 million of those holders have agreed to the swap. Creditors have until April 30 to decide whether to participate in the deal.

Hospitals and doctors groups have been pushing to get emergency government funds from the CARES Act while also trying to persuade lawmakers to approve more aid. But it remains unclear whether private equity-backed companies like Envision will receive any of those funds to offset losses.

KKR agreed to buy Envision in June 2018 in a deal that valued the company at $9.9 billion including debt. The firm planned to invest as much as $3.5 billion of equity in the transaction, a regulatory filing shows.

The health-care sector, long seen as a haven during economic downturns, has attracted billions of dollars of private equity investment in recent years. Envision was built through a series of acquisitions, culminating in a tie-up with AmSurg, a large surgery center and physician staffing group, in 2016.

Bloomberg News