Envision Healthcare hits the skids

[emergentmd]

Wouldn’t call you “commie”. My question is why most of this isn’t “fraud”??

If I buy a house (fixer upper), THEN take out a “home improvement loan”, pay myself a “bonus” (call MYSELF the contractor and sub, do little to no work), THEN default on the home loan AND the home improvement loan, THAT would be fraud.

When private equity buys a company, loads it up with debt (for “improvement”), pays themselves and leadership “bonuses” with that money, then declares bankruptcy (“Oops! This business model is not sustainable!!), the Govt allows them to walk away from it..

How is one different from the other, when it’s OBVIOUS the borrowed money was not being put to proper use???

There is nothing illegal if you bought a fixer upper, took out a 300K home improvement loan, pay your brother a 300K salary, then default on the loan. Problem is you would go bankrupt, have a terrible credit score for 7+ years, and have shot your load.

Problem is ultra rich people have banks tripping over themselves to lend them money b/c of relationships/track records and defaults reflects on the business and not the person's credit scores.

No one will loan a upper middle class doc money without collateral and if you default your credit worthiness is screwed for years.

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[dantt]

Can anybody explain to me how these companies are able to offload their bad debt / toxic assets? Why would existing creditors allow the company/fund to shift away the most valuable assets? Who would loan them money if the collateral can be pulled away? When there's a lien on my home, I can't sell it until it's lifted but these guys can?

 

[gasdoc77]

Can anybody explain to me how these companies are able to offload their bad debt / toxic assets? Why would existing creditors allow the company/fund to shift away the most valuable assets? Who would loan them money if the collateral can be pulled away? When there's a lien on my home, I can't sell it until it's lifted but these guys can?

For years, I too have wondered why creditors and/or banks would tolerate such a degree of moral hazard (in all facets of our economy) unless of course there is a "lender of last resort" ever-present in the wings. The proletariat are just pawns in this game.

 

[grt398]

Can anybody explain to me how these companies are able to offload their bad debt / toxic assets? Why would existing creditors allow the company/fund to shift away the most valuable assets? Who would loan them money if the collateral can be pulled away? When there's a lien on my home, I can't sell it until it's lifted but these guys can?

In short the lenders get paid for agreeing to amendments to the credit agreement, either directly or with some other incentive they want. Or the debt was purchased in the secondary market at say 95 (par would be 100) and the creditors agree to the proposal in order to get taken out at par, meaning they get paid 100% on the debt they purchased for 95% of face value. Add in some leverage and the returns can be substantial. You're also assuming the creditors on paper actually own the economic interest, which they may have already sold off to some other party. This is different than owning the voting rights + economic interest. There's lots of things that can be done. I used to deal with some of this stuff in a former life.

You have nothing to incentivize the lien holder in your example except paying off the lien. Let's say you offered them 95% of the value of the lien and then 10% equity interest in a new business you were starting...depending on how they valued your business, they might take that as a better deal than waiting for you to pay off the lien in its entirety. Not sure if that helps but...

 

[dantt]

In short the lenders get paid for agreeing to amendments to the credit agreement, either directly or with some other incentive they want. Or the debt was purchased in the secondary market at say 95 (par would be 100) and the creditors agree to the proposal in order to get taken out at par, meaning they get paid 100% on the debt they purchased for 95% of face value. Add in some leverage and the returns can be substantial. You're also assuming the creditors on paper actually own the economic interest, which they may have already sold off to some other party. This is different than owning the voting rights + economic interest. There's lots of things that can be done. I used to deal with some of this stuff in a former life.

You have nothing to incentivize the lien holder in your example except paying off the lien. Let's say you offered them 95% of the value of the lien and then 10% equity interest in a new business you were starting...depending on how they valued your business, they might take that as a better deal than waiting for you to pay off the lien in its entirety. Not sure if that helps but...

Thanks for the explanation. Where does the money to pay the lenders to agree to the amendments come from? It doesn't sound like more money is being injected or if it is it doesn't cover the lost value of the assets being moved. Likewise, where does the money to purchase the debt back come from and why would people put in the money that would be required to make those lenders whole to acquire those toxic assets.?

 

[grt398]

Money can come from various sources. Remember many of these deals are levered, so you're talking about a situation where the sponsor might borrow $4 of debt for every $1 of equity invested, or higher in some cases (I think 8:1 was the most levered I ever participated in). That affects their ultimate return on equity, and meeting their own internal rate of return (IRR). So they could inject additional cash to do the aforementioned things and still meet their goal, maybe not as well as they hoped, but enough for everyone to get targets/bonuses etc. You can also get more creative with debt issuance and at the times do things like payment-in-kind "optional" debt...known as PIK-toggle debt. Basically when the initial debt gets issued, the sponsor has the right to "toggle" cash flow payments on or off and instead pay them with additional debt. So as an example, let's say you issued $100mm of debt with a 5% rate -> $5mm of cash flow required to be paid per year. Instead of paying that cash flow, you could issue an additional $5mm of debt per year and distribute that to the debt purchasers as their "cash" payment. Now you don't have to spend $5mm of cash flow. You can use that to pay yourself (meaning the sponsor, aka the PE shop or hedge fund) a dividend, or perhaps shift it to pay for an amendment etc.

Additionally, you're assuming each purchaser of the debt is agreeing to an amendment in such a way that it's profitable for them on that particular deal. Not necessarily true. Sometimes you're willing to lose money on a deal in order to get a larger allocation of a later deal where you can make more money. Basically, agreeing to an amendment might be used as a loss leader where the owner of the debt knowingly loses money but the lead syndicator on the deal (think Goldman, JP Morgan, Morgan Stanley etc) unofficially promises them a larger allocation of a more profitable deal down the line. Relationships matter a lot in finance for that reason, among many others.

Finally, you're probably assuming the goal of purchasing a company is to run it profitably. Not necessarily true. The goal is to make a profit on your initial investment that meets your firm's IRR. Sometimes that means doing things that generate short term profit but are long term detrimental to the company, but you don't necessarily care once you've met your investment target and you're not planning to keep the company for more than 5 years anyway.

That's a bit too much info probably, but maybe answers some of your questions.

 

[Big Swinging Doc]

Shame on anyone--ANYONE--who takes a job with Envision:

Some doctors say a focus on profits is hurting health care in U.S. ERs

A doctor fired after criticizing care at the ER he ran said execs are focused on the financial outcome, “and the outcome is ‘Hey, we’re making money.’”

www.nbcnews.com

 

[gasdoc77]

Shame on anyone--ANYONE--who takes a job with Envision:

Some doctors say a focus on profits is hurting health care in U.S. ERs

A doctor fired after criticizing care at the ER he ran said execs are focused on the financial outcome, “and the outcome is ‘Hey, we’re making money.’”

www.nbcnews.com

I would say shame an those who sold out or continue to. They aspired to be a doctor and help people, took an oath, then because of fear or greed chose to prioritize themselves when the opportunity came (women, children, and elderly be d#$mned). They are squarely to blame for all who suffer or die as a result of substandard care. May they sleep soundly on their mountains of blood money since they can't take it with them.

 

[Dr. Rude]

I would say shame an those who sold out or continue to. They aspired to be a doctor and help people, took an oath, then because of fear or greed chose to prioritize themselves when the opportunity came (women, children, and elderly be d#$mned). They are squarely to blame for all who suffer or die as a result of substandard care. May they sleep soundly on their mountains of blood money since they can't take it with them.

 

[GassYous]

I would say shame an those who sold out or continue to. They aspired to be a doctor and help people, took an oath, then because of fear or greed chose to prioritize themselves when the opportunity came (women, children, and elderly be d#$mned). They are squarely to blame for all who suffer or die as a result of substandard care. May they sleep soundly on their mountains of blood money since they can't take it with them.

I dunno I just heard a podcast with an orthopod a few years out selling for 20 mil. I would do the same

 

[voxveritatisetlucis]

Just end the carried interest loophole and private equity would be out of healthcare tomorrow

 

[deleted941485]

I dunno I just heard a podcast with an orthopod a few years out selling for 20 mil. I would do the same

If I had 20mil for a buy out I’d quit tomorrow and move to the coast. It’s a powerful motivator

 

[maxxor]

If I had 20mil for a buy out I’d quit tomorrow and move to the coast. It’s a powerful motivator

Professional services contract specialties are not getting 20 million a partner.

Maybe ortho commands that now with lots of ancillaries and relatively early PE presence. It will change quickly. A very large practice in my area sold and is creating a new ortho PE group. 100 or so orthos with CT/MRI and in house PT. Wonder how much they got each.

 

[CubsDynasty]

Looks like Envision is losing big contracts across the country to other groups the past few months, doesn't look good for them

 

[kidthor]

S&P downgrades radiology provider Envision Healthcare, citing ongoing cash crunch

"S&P labeled Envision’s liquidity as “less than adequate” and believes it will be unable to repay $700 million owed October 2023, unless it refinances or extends the maturity date. The company lists $765 million in cash on its balance sheet. But $200 million-plus of that is held in joint ventures and unavailable to Envision. Discretionary cash flow deficits are expected to leave the provider group with less than $100 million by 2022’s conclusion. And while experts expect the picture to improve next year, they still predict that Envision won’t have enough funds to repay loans that list company assets as collateral, nor its revolving credit line."

 

[Dr. Rude]

Let ‘em bleed.

 

[secretasianman]

what assets did they list as collateral? Medical equipment and office space? maybe MDs lol.

 

[Dr. Rude]

what assets did they list as collateral?….maybe MDs lol.

Don’t laugh. Contracts and Non competes are corporate assets that can be sold.

 

[aneftp]

Remember the original Sheridan healthcare went public. Than private twice! The first time it went private (from public was 1999). Here is the 1999 article. Each time the majority stake owners collect profits from sell to private equity. It’s symbiotic relationship when this happens.

Private equity gives money to take it private. The majority stockholders collect a huge lump sum (stockholders get some money)

Private equity use huge leverage financial transaction. (Usually less than 5% of real money involved). The rest is all fake funny debt to complete the deal. Say this 1999 deal was worth 155 million. Nations Bank (aka Bank of America) really financed 80% of the purchase.

75 plus 50 million. Equals 125 million. And I can almost guarantee you the other 35 million to take the company private. The private equity company likely put up less than half that 35 million.

Vestar than sold Sheridan to another private firm in 2004

SHERIDAN SOLD FOR $155M

Seeking continued growth but facing investor disfavor toward physician-practice management firms, Hollywood-based Sheridan Healthcare said Thursday it will sell the company to private investors in …

www.sun-sentinel.com

Vestar Capital Partners Announces Completion of Sheridan

www.bloomberg.com

Than sold again to Hellman and Friedman in 2007

Hellman and Friedman (principal owners of the venture firm were both from Lehman and Solomon, both defunct companies). Who flipped to for 2.3 billion to amsurg.

It’s just a crazy hot potato. And physicians and mid levels are just the low man on the totem pole

 

[GASMAN]

So anything to worry about if one is working for envision ?

 

[dantt]

In short the lenders get paid for agreeing to amendments to the credit agreement, either directly or with some other incentive they want. Or the debt was purchased in the secondary market at say 95 (par would be 100) and the creditors agree to the proposal in order to get taken out at par, meaning they get paid 100% on the debt they purchased for 95% of face value. Add in some leverage and the returns can be substantial. You're also assuming the creditors on paper actually own the economic interest, which they may have already sold off to some other party. This is different than owning the voting rights + economic interest. There's lots of things that can be done. I used to deal with some of this stuff in a former life.

You have nothing to incentivize the lien holder in your example except paying off the lien. Let's say you offered them 95% of the value of the lien and then 10% equity interest in a new business you were starting...depending on how they valued your business, they might take that as a better deal than waiting for you to pay off the lien in its entirety. Not sure if that helps but...

Looks like the lenders are not totally stupid and realize they are getting screwed in this case. It doesn't sound like they even agreed to anything and it just happened so I'm curious how that's even possible.

"
Lenders to KKR & Co.’s Envision Healthcare are considering litigation after the physician-staffing company moved roughly half its value beyond their grasp to secure a fresh source of financing, according to people familiar with the matter.
Centerbridge Partners LP and Angelo Gordon & Co. led the first-lien financing deal, which moved an estimated $2.5 billion in collateral away from most of Envision’s existing lenders, the people familiar said. The term lenders, which met to consider legal options on Monday, said the deal came at their expense as the first-lien debt was mostly provided by third-party financial institutions that had little existing credit exposure to Envision, according to people familiar with the deal.
"

KKR’s Envision Sparks Lender Dispute With Centerbridge, Angelo Gordon Deal

A recapitalization deal for Envision Healthcare comes at the expense of most prior lenders, releasing their claims on its AmSurg unit

www.wsj.com

 

[Zekchar]

Looks like the lenders are not totally stupid and realize they are getting screwed in this case. It doesn't sound like they even agreed to anything and it just happened so I'm curious how that's even possible.

"
Lenders to KKR & Co.’s Envision Healthcare are considering litigation after the physician-staffing company moved roughly half its value beyond their grasp to secure a fresh source of financing, according to people familiar with the matter.
Centerbridge Partners LP and Angelo Gordon & Co. led the first-lien financing deal, which moved an estimated $2.5 billion in collateral away from most of Envision’s existing lenders, the people familiar said. The term lenders, which met to consider legal options on Monday, said the deal came at their expense as the first-lien debt was mostly provided by third-party financial institutions that had little existing credit exposure to Envision, according to people familiar with the deal.
"

KKR’s Envision Sparks Lender Dispute With Centerbridge, Angelo Gordon Deal

A recapitalization deal for Envision Healthcare comes at the expense of most prior lenders, releasing their claims on its AmSurg unit

www.wsj.com

Eventually the hot potato has a "bag-holder" and then the house of cards comes crumbling down. Day to day work wont change though.

 

[gasmark]

anybody know any info about the Northside group in Atlanta? I have heard rumors envision is imploding it??

 

[aneftp]

anybody know any info about the Northside group in Atlanta? I have heard rumors envision is imploding it??

It was a very lucrative private practice group prior to their buyout in 2015. Very lucrative buyout cough cough. I’ll check my sources and try to figure what’s going on there these days. Envison only pulls out of money losers. It would be a shock to me if they pulled out (unless the hospital system forced them out).

 

[maxxor]

It was a very lucrative private practice group prior to their buyout in 2015. Very lucrative buyout cough cough. I’ll check my sources and try to figure what’s going on there these days. Envison only pulls out of money losers. It would be a shock to me if they pulled out (unless the hospital system forced them out).

Sigh so was their radiology group and they sold to rad partners. Despite making insane money, it never seems to be enough.

 

[pro-propofol]

Envision has pulled out of Olympia WA and Port Angeles WA

 

[Endee]

anybody know any info about the Northside group in Atlanta? I have heard rumors envision is imploding it??

Regardless of Envision, the Northside group is extremely well run. I have a lot of friends that work there. Good group, very busy, and I imagine very profitable even with Envision's cut. I hope the successful groups like them are somehow able to eventually escape the corporate yoke.

 

[Dr. Rude]

Sigh so was their radiology group and they sold to rad partners. Despite making insane money, it never seems to be enough.

Few docs in any field have any vision for their practice past
Their own individual retirement.

 

[Southpaw]

Regardless of Envision, the Northside group is extremely well run. I have a lot of friends that work there. Good group, very busy, and I imagine very profitable even with Envision's cut. I hope the successful groups like them are somehow able to eventually escape the corporate yoke.

Put another way - Envision, or any AMG that comes after, does absolutely nothing for this group and any like it aside from taking a cut off the top and creating corporate hassle that complicates the job.

 

[dannyboy1]

Few docs in any field have any vision for their practice past
Their own individual retirement.

Does anyone? In any line of work? It’s just a job after all is said and done…..

 

[IMGASMD]

Does anyone? In any line of work? It’s just a job after all is said and done…..

It used to. At least I believe “partnership” or “legacy” used to mean something.

The corporate catch phrases now is, “writing on the wall….” “Market share….” “Not enough bandwidth….”

 

[Endee]

Put another way - Envision, or any AMG that comes after, does absolutely nothing for this group and any like it aside from taking a cut off the top and creating corporate hassle that complicates the job.

Agree. I think in the end a lot of these high performing groups probably regret the decision to go with a corporate group.

Short term gain long term pain.

 

[gasmark]

I heard envision termed the contract - 180 days. but haven't been able to verify.

 

[aneftp]

Few docs in any field have any vision for their practice past
Their own individual retirement.

Business make their real money when they sell it. Not when they keep it.

You really think the founders of companies become billionaires just running the company privately. No. They sell it publicly.

 

[Dr. Rude]

Business make their real money when they sell it. Not when they keep it.

You really think the founders of companies become billionaires just running the company privately. No. They sell it publicly.

Yup. but in the case of physicians, many would run it into the ground their last years by not investing in the future, keeping employee salaries low, and a few extra hundred thousand buyout.

 

[nimbus]

https://www.docketalarm.com/cases/Florida_State_Broward_County_Seventeenth_Circuit_Court/CACE22006403/Envision_Healthcare_Corp._et_al_Plaintiff_vs._United_HealthCare_Insurance_Co._et_al_Defendant/docs/05-02-2022_Complaint%20%28eFiled%29.pdf

 

[Dr. Rude]

https://www.docketalarm.com/cases/Florida_State_Broward_County_Seventeenth_Circuit_Court/CACE22006403/Envision_Healthcare_Corp._et_al_Plaintiff_vs._United_HealthCare_Insurance_Co._et_al_Defendant/docs/05-02-2022_Complaint%20%28eFiled%29.pdf

sounds like Al Qaeda is fighting ISIS.

 

[IMGASMD]

 

[chessknt]

Business make their real money when they sell it. Not when they keep it.

You really think the founders of companies become billionaires just running the company privately. No. They sell it publicly.

What if they only sold to terrorist warlords or drug kingpins because they had more money than other parties? Because that is what selling to private equity is for the medical field.

 

[aneftp]

What if they only sold to terrorist warlords or drug kingpins because they had more money than other parties? Because that is what selling to private equity is for the medical field.

Whatever is legal at the time within the laws of that specific country.

I don’t make the rules.

 

[Dr. Rude]

Whatever is legal at the time within the laws of that specific country.

I don’t make the rules.

Welcome Milton Friedman.

 

[peltier]

Meanwhile they blame the physicians for being greedy and overpaid, while the public at large has never heard of the nonsense played by these corporate entities and insurance companies. It's not a good look with a big bill comes with a doctors name attached to it, especially when that doctor had nothing to do with these games.

What really confuses me is how these games are not considered the "corporate practice of medicine", which is banned in all states yet in reality practiced in all.