(Bloomberg) -- Wellpath Holdings Inc., one of the largest providers of health-care services to prisons and jails across the US, has filed bankruptcy after grappling with escalating labor and legal costs.
The H.I.G. Capital-backed firm, which has about $644 million of funded debt, filed for Chapter 11 in the US Bankruptcy Court for the Southern District of Texas. In a separate statement, Wellpath said it has secured a $522 million debtor-in-possession financing facility from some lenders and plans to sell some businesses.
These transactions are expected to reduce the total debt of Wellpath’s correctional healthcare business by about $550 million, the company said, adding operations are expected to continue as usual throughout the court-supervised process.
The filing comes less than two weeks after Bloomberg reported that the Nashville-based company was preparing to file for bankruptcy. Moody’s Ratings had declared the company in default in late October after it recently failed to repay a credit facility and deferred interest payments on other debts.
Wellpath is among a number of private equity-owned companies in the prison-services industry that have struggled under heavy debt loads in recent years. The industry faces pressures including high labor costs and public scrutiny from inmate advocacy groups and others.
Prison-phone provider Aventiv Technologies, backed by Platinum Equity, was looking to sell itself to avoid a potential bankruptcy filing, Bloomberg reported in October. H.I.G. is a former owner of Securus Technologies, now known as Aventiv.
The pandemic, coupled with inflation and minimum wage hikes, had driven labor costs higher, wrote Timothy J. Dragelin, Wellpath’s chief restructuring officer and chief financial officer in court papers. The company’s financial condition deteriorated further due to the costs of settlements of claims related to healthcare services, he added.
Financing
Wellpath said about 85% of its first-lien lenders and more than 80% of its second-lien lenders have agreed to a restructuring pact. As part of that pact, the lender group will submit an initial stalking-horse bid for the recovery solutions business, which services about 3,000 patients and generated $425 million revenues in 2023. The bid will set a floor for the auction and is subject to better offers.
The lender group will also commit to an equity investment in the reorganized company’s other businesses, including its correctional healthcare operations.
Wellpath’s proposed debtor-in-possession financing facility consists of $105 million in new money financing and a roughly $417 million roll-up, according to court papers.
The case is Wellpath Holdings, Inc., 24-90533, US Bankruptcy Court for the Southern District of Texas.
--With assistance from Finbarr Flynn.
(Updates throughout with details from court papers.)
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