**M*Modal seeks bankruptcy protection**

May 2014 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Private equity-backed Speech recognition and data analytics vendor M*Modal Global Services Pvt Ltd announced in late March it had voluntarily filed for Chapter 11 bankruptcy protection.

M*Modal’s decision to file for bankruptcy was preceded by a period of financial difficulty. The firm has seen a marked decline in sales which resulted in the firm failing to make a February interest payment on $250m in bonds that are due in 2020.

M*Modal, which was acquired by the private equity unit of JP Morgan Chase & Co in a $1.1bn leveraged buyout in 2012, sought bankruptcy protection at the Bankruptcy Court for the Southern District of New York as the company attempts to reduce its outstanding debt pile.

According to the firm’s bankruptcy filing, the company and its 14 subsidiaries collectively listed liabilities of $852m and assets of around $626m. M*Modal currently owes approximately $500m to a group of lenders led by Royal Bank of Canada. This outstanding debt stems from a $445m term loan and $75m revolving credit facility made in 2012. The company also owes more than $250m in unsecured notes. M*Modal noted in the court paperwork that the company intends to use the Chapter 11 process to greatly restructure its debt to better align with its plans for the future.

A number of M*Modal’s creditors are in negotiations with the company about its outstanding debt. It is believed that the group of creditors, including Brigade Capital Management, Blackstone Group’s GSO Capital Partners, and Fidelity Investments, are in talks with the company as it looks to swap its debt for equity in the newly reorganised business. Real estate company The Lionstone Group, which purchased the Carothers Building complex housing M*Modal’s headquarters, is another firm among the company’s large list of creditors.

Furthermore, M*Modal also owes a number of its current and former employees in excess of $5m in deferred acquisition payments. “We intend to use the court process to significantly strengthen M*Modal’s balance sheet and improve the company’s financial flexibility by reducing our debt burden and establishing a capital structure that supports our investment in the future,” said Duncan James, the company’s chief executive, in a statement announcing the bankruptcy.

M*Modal expects to continue existing operations, including paying its employees as normal, throughout the Chapter 11 process. The firm believes that revenue from the company’s continued operations, in addition to its cash on hand, should provide sufficient liquidity to finance its bankruptcy proceedings for the foreseeable future.

M*Modal, based in Franklin, Tennessee, currently employs in excess of 9900 workers across six countries. The company’s customer base includes more than 3800 hospitals, clinics and medical practices. Its main area of business is speech recognition technology and data analytics which enable medical practitioners to include the context of their conversations with patients in electronic health records. However, in recent times the sector has come under pressure. The proliferation of available technologies that quickly and accurately convert speech into text, and the adoption of electronic health records have both heavily impacted upon M*Modal’s business.

M*Modal’s financial performance in 2013 bears witness to the company’s worsening financial plight. Although 80 percent of its revenue came from its transcription services, the firm saw a considerable drop in both earnings and revenue last year compared with 2012. In 2013 it generated approximately $411m in revenue and $85.6m in earnings before interest, taxes, depreciation and amortisation (EBITDA), a decrease from about $453m in revenue and $96.9m in EBITDA the year previous.

Prior to its bankruptcy filing, both Moody’s Investors Service and Standard & Poor’s downgraded M*Modal’s debt rating. This plunged the firm’s debt rating further into junk territory. The company saw its debt rating downgraded by Moody’s on a number of occasions in 2013.

Richard Summerfield