Private Debt
KKR's equity at risk in Envision Healthcare debt restructuring talks
April 20, 2023
One of the largest physician staffing companies in the US is weighing restructuring options that could potentially wipe out its PE owner's equity interests.
Indebted companies are bowing to financial pressure as defaults tick up across the corporate world, and much of the riskiest debt is carried by PE-backed businesses.
Envision Healthcare, a KKR-backed physician staffing company, is talking to creditors to restructure its debt after facing a string of issues including a missed interest payment, weakened earnings and contract battles, The Wall Street Journal reported.
The restructuring options reportedly include a debt-for-equity swap that could diminish or erase KKR's ownership stake in Envision. The company is also entertaining the option of filing for Chapter 11 bankruptcy protection.
KKR took the Nashville-based company private in 2018 in an all-cash acquisition at a valuation of $9.9 billion.
Envision missed an interest payment Saturday of around $40 million and entered a 30-day grace period, according to reports. Envision has around $1 billion in outstanding unsecured bonds that carry an 8.75% interest rate and are due in 2026, market data platform MarketAxess reported. The company also failed to make a timely disclosure of its Q4 financial results.
In recent quarters, Envision has been coping with steep losses, a result of increased labor costs, a contract fight with insurer UnitedHealthcare and a change in federal legislation aimed to protect patients from surprise medical bills.
The staffing company's highly leveraged balance sheet was strained by higher interest expenses over the course of last year, when the Federal Reserve ramped up its efforts to combat inflation.
In September, Moody's downgraded Envision's credit rating to C—the lowest notch on the junk-debt ratings scale—and noted that the weakened profits, high interest costs and shortage of cash had put the company's capital structure under stress. The credit rating agency said Envision will likely run out of money by the end of this year. It had roughly $1.4 billion in cash at the end of June, according to Moody's.
More and more businesses in the US are struggling with financial woes due to broader economic hardships and industry-specific challenges. In Q1, a number of highly indebted companies entered restructuring talks with their lenders or pursued strategic options to improve liquidity conditions. The list includes troubled home-goods retailer Bed Bath & Beyond and Cornell Capital-owned appliance manufacturer Instant Brands.
As of April 4, Moody's listed 227 companies at the bottom of its junk-ratings ladder, suggesting an increasing number of companies are facing heightened financial stress due to elevated debt burdens. PE-backed businesses now make up to two-thirds of the names rated B3 negative or below by Moody's.
Envision didn't reply to a request seeking comment. KKR declined to comment.
Featured image by rafapress/Shutterstock
Indebted companies are bowing to financial pressure as defaults tick up across the corporate world, and much of the riskiest debt is carried by PE-backed businesses.
Envision Healthcare, a KKR-backed physician staffing company, is talking to creditors to restructure its debt after facing a string of issues including a missed interest payment, weakened earnings and contract battles, The Wall Street Journal reported.
The restructuring options reportedly include a debt-for-equity swap that could diminish or erase KKR's ownership stake in Envision. The company is also entertaining the option of filing for Chapter 11 bankruptcy protection.
KKR took the Nashville-based company private in 2018 in an all-cash acquisition at a valuation of $9.9 billion.
Envision missed an interest payment Saturday of around $40 million and entered a 30-day grace period, according to reports. Envision has around $1 billion in outstanding unsecured bonds that carry an 8.75% interest rate and are due in 2026, market data platform MarketAxess reported. The company also failed to make a timely disclosure of its Q4 financial results.
In recent quarters, Envision has been coping with steep losses, a result of increased labor costs, a contract fight with insurer UnitedHealthcare and a change in federal legislation aimed to protect patients from surprise medical bills.
The staffing company's highly leveraged balance sheet was strained by higher interest expenses over the course of last year, when the Federal Reserve ramped up its efforts to combat inflation.
In September, Moody's downgraded Envision's credit rating to C—the lowest notch on the junk-debt ratings scale—and noted that the weakened profits, high interest costs and shortage of cash had put the company's capital structure under stress. The credit rating agency said Envision will likely run out of money by the end of this year. It had roughly $1.4 billion in cash at the end of June, according to Moody's.
More and more businesses in the US are struggling with financial woes due to broader economic hardships and industry-specific challenges. In Q1, a number of highly indebted companies entered restructuring talks with their lenders or pursued strategic options to improve liquidity conditions. The list includes troubled home-goods retailer Bed Bath & Beyond and Cornell Capital-owned appliance manufacturer Instant Brands.
As of April 4, Moody's listed 227 companies at the bottom of its junk-ratings ladder, suggesting an increasing number of companies are facing heightened financial stress due to elevated debt burdens. PE-backed businesses now make up to two-thirds of the names rated B3 negative or below by Moody's.
Envision didn't reply to a request seeking comment. KKR declined to comment.
Featured image by rafapress/Shutterstock
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