Adeptus Health and Deerfield collaborate on comprehensive financial restructuring plan

June 2017 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

June 2017 Issue

Adeptus Health Inc, the largest operator of freestanding emergency rooms in the US, and its subsidiaries filed for Chapter 11 bankruptcy protection in April to “significantly reduce” its debt. The company’s filing was directed by a financial restructuring plan developed by Adeptus with New York-based hedge fund Deerfield Management Co. and other creditors.

Adeptus filed for bankruptcy protection in Dallas. Though the company’s wholly-owned subsidiaries are included in the court-supervised restructuring, the joint venture entities, to which Adeptus is a party, are not part of the process. At the conclusion of the restructuring process, ownership of Adeptus is expected to transfer to Deerfield. Adeptus has received $45m in debtor-in-possession financing from Deerfield, a long term investor in the company, which will facilitate Adeptus’ continued operation throughout the restructuring.

The company, which listed $799m in assets, had $213m of its senior debt bought out by Deerfield — already a minority stakeholder in the company, along with a number of other private equity firms — in early April after the company missed a payment on a $7.5m bridge loan, taken out on 7 March which matured, unpaid, on 31 March. Deerfield also owns around 10 percent of Adeptus’ common shares.

Declining revenues and a number of other headwinds, including regulatory issues surrounding costs and reimbursements, have contributed to Adeptus’ perilous financial state in recent years. The speed at which Adeptus expanded also created issues and the company was haemorrhaging startup money for its new locations as a result. Many of Adeptus’ new locations took many months to become profitable, according to a filing by chief restructuring officer Andrew Hinkelman, whose appointment was announced in March. Pending class action and securities litigation have also added to the company’s financial woes.

Further, Adeptus has come under pressure from increased competition in its non-joint venture markets, particularly from hospitals and other freestanding ER rivals looking to provide convenient access points for patients away from their often-crowded hospitals. HCA Holdings, the US’ largest investor-owned hospital company, has 60 freestanding emergency departments in 14 of its markets and plans to expand to 80 such facilities by early 2018.

“Our partnership with Deerfield and the actions we are taking today are intended to strengthen Adeptus and enable us to continue our mission of providing access to the highest-quality medical care to the communities we serve,” said Gregory W. Scott, chairman and interim CEO of Adeptus. “Over the last several years, Adeptus has invested significantly to expand our facility footprint and respond to the growing demand for high-quality emergency medical care. While these investments have increased patient access, the associated expenditures have strained the Company’s financial resources. We believe that our partnership with Deerfield and the associated court-supervised restructuring process is the best path forward for Adeptus. As a long-term investor in the Company, Deerfield understands our business well. Their desire to deepen their relationship and commitment to our business, employees and partners demonstrates that they share our confidence in Adeptus and in our future prospects.”

Jim Flynn, managing partner of Deerfield, said, “We are pleased to enter into this partnership with Adeptus. Adeptus Health’s network of freestanding emergency rooms, employees and partners provides an excellent foundation for efficiently delivered, high-quality emergency medical care. We look forward to working closely with the Adeptus team and the dedicated physicians and medical staff working in its facilities to ensure that the Company reaches its full potential. Deerfield is committed to support the Company with capital, healthcare expertise and operational support,” Mr Scott continued,

“As always, our facilities are open 24-7, and we are continuing to offer rapid access to board-certified physicians on-site. Importantly, we expect to continue working with our vendors and supporting the medical staff in our facilities as normal throughout this process. We thank our incredible team members for their hard work and dedication to our patients.”

Richard Summerfield