Related Documents:
Declaration of Timothy Dragelin – CRO
RSA
Motion to Obtain Post-Petition Financing
Motion to Approve Stalking Horse Bid
H.I.G. Capital-backed Wellpath filed for prepackaged chapter 11 bankruptcy in Houston yesterday, seeking a dual-track plan of reorganization that includes selling its Recovery Solutions business for $375mn to lenders and a restructuring around its Wellpath Correctional Healthcare entity with an equity investment by the same group of prepetition lenders. The totality of the transactions will slash the prison health company’s $664mn prepetition debt by $500mn, according to court filings.
The RSA provides for $522mn in DIP financing, which includes $105mn in new money provided by the ad hoc group of lenders as signatories to the RSA and $417mn in rolled-up prepetition 1L and 2L loans.
According to the declaration of CRO Timothy Dragelin, the company faced a “significant maturity wall” and engaged with an ad hoc group of secured prepetition lenders led by Akin Gump and Houlihan Lokey. The company’s financial performance experienced fluctuations over the past three years, driven by numerous external and internal challenges. A significant factor contributing to Wellpath’s financial woes was the impact of the COVID-19 pandemic, as well as a short-term increase in professional liability insurance expenses, primarily driven by case settlements associated with terminated contracts and the lack of available third-party liability insurance.
The first-day hearing is scheduled for Nov. 12 at 18:00 ET before Judge Alferdo Perez of the Southern District of Texas Bankruptcy Court.
Prepetition capital structure
Restructuring support agreement
- The RSA provides for a plan effective date of no later than March 17, 2025.
- The ad hoc group of prepetition secured lenders will submit a stalking horse bid of $375mn for the acquisition of the Recovery Solutions business with a sale hearing to occur before Jan. 20, 2025.
- DIP lenders will be offered equity equal to $20mn-$55mn, representing 97% of the common equity of reorganized Wellpath. 1L lenders will receive the remaining 3%.
- 2L lenders will receive a pro rata share from any sale of the Recovery Solutions business.
- General unsecured creditors will receive a yet to be determined amount either through the sale of Recovery Solutions or through interests in a litigation trust.
- The RSA also entails a take-back debt term loan facility that will provide for $125mn distributed pro rata to the DIP lenders on account of their remaining roll-up loans.
Debtor-in-possession financing
- Participation in the DIP facility is available to 1L and 2L lenders.
- New-money DIP term loans:
- $105mn in new-money backstopped by the ad hoc group of prepetition secured lenders.
- $45mn will be available upon entry of the interim order and the remaining $60mn upon entry of the final order.
- Roll-up DIP loans:
- $417mn roll-up of 1L and 2L term loans.
- The 1L term loans will be rolled-up on a 3.95:1 ratio while the prepetition 2L term loans will be rolled-up on a 0.50:1 basis.
- The DIP term loan facility will mature 210 days from the petition date. The new-money tranche will accrue interest at SOFR+7.25% per annum and the rolled-up portion at SOFR+6.93% PIK monthly.
- The backstop parties will receive a 10% commitment premium on the new-money commitments paid in kind. The closing fee is 5% of the new-money tranche also paid in kind on the closing of the transaction.
Jennifer Lappe, J.D.
jennifer.lappe@levfininsights.com
+1 346 256 1345
