Prospect Medical files for Chapter 11

March 2025 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

March 2025 Issue

Prospect Medical Holdings and 66 affiliates filed for Chapter 11 bankruptcy protection on 11 January, with plans to reorganise certain medical assets, sell two medical centres in Rhode Island, and divest from another in Pennsylvania.

The company, which owns and operates hospitals and medical centres and employs about 12,600 workers, listed $1bn to $10bn in assets and liabilities in its documentation filed in the US Bankruptcy Court for the Northern District of Texas. In its filing, the company noted that it would seek approval of a $100m term loan debtor-in-possession (DIP) financing from JMB Capital Partners Lending to finance operations while its case proceeds. During the bankruptcy proceedings, Prospect’s various medical centres and offices will remain open.

“Today’s actions represent an important step forward in our longstanding commitment to best serve the interests of our patients, physicians, employees, and communities,” said Von Crockett, chief executive of Prospect Holdings. “Divesting our operations outside of California will ensure that they receive necessary financial support so that the communities that rely on those facilities will maintain continued access to highly coordinated, personalized, and critical healthcare services long into the future.

“Through this process, Prospect Holdings will regain its financial footing as we rededicate ourselves to our original mission of serving the community,” he continued. “We look forward to working alongside our stakeholders to implement these strategic transactions, and are confident that through these actions, Prospect Holdings will be better positioned to prioritize and execute its core strengths.”

Approval of the DIP financing was granted on 15 January and $29m was made available immediately. The Bankruptcy Court also granted Prospect Holdings interim approval to obtain a revolving credit facility provided by eCapital Healthcare Corp. in an aggregate principal amount of up to $90m. This financing, together with cash generated from the company’s ongoing operations, is expected to provide sufficient liquidity to support the company’s financial obligations and day-to-day operations during the court-supervised process.

“We are pleased to have received prompt Bankruptcy Court approval of these first day motions, which will enable Prospect Holdings to continue operating and serving patients in the normal course,” said Mr Crockett. “With this Court relief and the support of our lenders, we look forward to moving through this process and ensuring that patients receive the quality and compassionate care they deserve. Having now achieved this initial milestone, Prospect Holdings is positioned to continue paying our physicians and employees and delivering a coordinated and personalized care experience for our patients without interruption.”

In November 2024, PHP Holdings and Astrana Health Inc. reached an agreement for Astrana’s acquisition of certain Prospect Health System businesses and assets for $745m, including California licensed healthcare service plan, Prospect Health Plan, medical groups in California, Texas, Arizona and Rhode Island, its management service organisation Prospect Medical Systems, pharmacy RightRx, and Foothill Regional Medical Center. The acquisition is expected to close in mid-2025, subject to regulatory approval and customary closing conditions.

Prospect was expected to generate about $1.2bn in revenue with expected adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of about $81m for the year ending 31 December 2024, according to Astrana.

Prospect has cited a number of challenges, including the lingering impacts of the coronavirus (COVID-19) pandemic, inflation, a significant cyber attack and increased denials from health plans as being the main drivers behind its bankruptcy filing.

However, Prospect’s financial trajectory has been attributed in some quarters to its former majority owner, private equity firm Leonard Green & Partners. Under Leonard Green’s ownership, Prospect began a $1.31bn dividend recapitalisation programme, which resulted in the firm receiving $658.4m in dividends and management fees, a move which loaded Prospect with even more debt.

Richard Summerfield