21st Century Oncology this week earned its place on LCD’s Distressed Watchlist, which tracks companies that have recently hired restructuring advisers or entered into creditor negotiations, issuers with debt trading at deeply distressed levels, as well as those with recent credit defaults or downgrades into junk territory.
The troubles at 21st Century were revealed months ago. The provider of radiation-therapy centers withdrew a proposed concurrent $439 million B term loan in late May after shelving its IPO, citing unfavorable market conditions. Following that, the Center for Medicare and Medicaid Services proposed a payment reduction to radiation-therapy services on July 3, which sent the bonds lower. About 45% of the company’s U.S. net patient-service revenue comes from Medicare and Medicaid.
The company’s subordinated bonds suffered huge declines in the past couple weeks as it sought additional cash to avoid a covenant breach and hired advisors at Millstein & Co. in an effort to raise additional cash from investors and distressed lenders.
Although not enough to clear the company from the Watchlist, there was encouraging news today. Bonds backing 21st Century Oncology jumped this morning after the company reached two agreements with an ad hoc group of holders to provide additional liquidity.
The company stated in an 8K filing that it has been working with a number of its noteholders and lenders in the past month to recapitalize its balance sheet to provide financial flexibility to continue to grow its business. The company said it plans to obtain additional liquidity through an equity contribution or subordinated debt incurred in a minimum amount of $150 million on or before Oct. 1, 2014, or it will consummate a recapitalization, according to the 8K filing.
Yesterday, Medical Developers, a subsidiary of the company, and various lenders entered into an agreement to provide $17.5 million in A and B term loans in order to provide liquidity to negotiate the terms of the recapitalization.
21st Century Oncology is controlled by Vestar Capital Partners. S&P rates the company B- and revised its outlook to negative, from stable, on July 14, noting heightened risks to the forecast that near-term liquidity will remain adequate. LCD placed it on its Distressed Watchlist on July 25.
We will update the Restructuring Watchlist as events warrant. The Watchlist, which is published regularly in LCD’s Distressed Weekly, includes companies that have recently hired restructuring advisers or entered into creditor negotiations, issuers with debt trading at deeply distressed levels, as well as those with recent credit defaults or downgrades into junk territory. – Matt Fuller/Joy Ferguson
Contact Marc Auerbach for questions regarding the Watchlist or LCD Research.