Services: Access to Capital, Financial Advisory Industries: Basic Industries/Distribution/Business Services, Healthcare/Medical, Technology Professionals: David Herman, Peter Kaufman Business Profiles: Private Equity / Entrepreneur Representations, Shareholder Successes
Gordian was engaged by the Company to manage the fallout from a failed sales process, ultimately achieving a restructuring that brought fresh capital in and secured an extended forbearance from the senior lenders.
Client: Undisclosed Healthcare Revenue Cycle Management Company
Formed through a combination of two of the Sponsor’s portfolio companies, the Company had experienced significant drag on its results due to attrition at one of the two legacy businesses. As a result, the Company was highly levered and lurching from one covenant breach to the next. At the behest of the senior lenders (the “Banks”), a sales process was launched and indications of interest were received in late summer at levels clearing the Company’s obligations.
In the midst of this process, the Company’s performance continued to falter, and those around the edges of the process balked and valuations dropped sharply amongst parties who had submitted IOI’s.
With its sale process in free fall, the Sponsor was faced with the possibility of having to fulfill its guaranty (the “Sponsor Guaranty”) of the ~$6 million revolver sitting at the top of the Company’s roughly $60 million of senior debt (the “Bank Debt”) and ~$40 million dollars of subordinated debt (the “Sub Debt”, owed to the “Sub Lender”). Moreover, the Company’s liquidity situation had deteriorated to the point that the Sponsor was having to continually provide short-term capital.
Gordian was engaged and broadly charged with managing the situation to the best achievable outcome. After performing expedited diligence, Gordian quickly engaged with the remaining buyers to understand exactly where the process stood in light of the latest operating results.
Those discussions made clear that there was no possibility of a sale in the near-term at a cash price that would get the Banks out whole, thereby triggering the Sponsor guaranty and leaving the Sub Lender empty handed. With a fast sale being problematic four our client, and with bankruptcy scenarios ruled out by the client due to management’s serious concerns about the business’ ability to weather a chapter 11, the focus of the engagement shifted to securing (i) sufficient liquidity for the business to right its operations, and (ii) a forbearance from the Banks of a sufficient duration to deliver improved results and begin anew a sales process based thereon.
With this focus, Gordian apprised the Banks of the prevailing facts and presented certain forbearance proposals. The Banks initially dismissed out of hand proposals involving an extended forbearance or any relief on the Sponsor guaranty.
Gordian then solicited and negotiated a proposal from the Sub Lenders, who proved quite interested in cooperating given their unsecured position and the possibility of being totally wiped out at values achievable in a near-term sale. This eventually yielded a proposal in which the Sub Lender and the Sponsor cooperated to provide the Company with fresh capital in exchange for (i) a long-term forbearance from the Banks, (ii) a dollar-for-dollar reduction in the Sponsor Guaranty, and (iii) a restructured waterfall that positioned “Old Equity” to share in the recovery far sooner.
After several weeks of intensive negotiations – involving the Company, the Banks and their advisor, the Sub Lender, the Sponsor, and counsel for each party – an extended forbearance agreement with significant covenant cushion and fresh capital coming into the Company was signed within six weeks of Gordian’s initial engagement.
By galvanizing enough constituent support around a solution and identifying and using what leverage was available to the Company, Gordian was instrumental in implementing a solution that solved the Company’s liquidity crisis and provided the Company with the runway to maximize value for all stakeholders – including the Sponsor, whose Guaranty was not only not called, but reduced.