KKR’s Envision Weighs Handing Control to Creditors in a Bankruptcy

[Franzd'Epinay]

WSJ News Exclusive | KKR’s Envision Weighs Handing Control to Creditors in a Bankruptcy

Envision Healthcare is exploring a chapter 11 bankruptcy that would give control of the struggling physician-staffing company to its creditors.

www.wsj.com

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[Jabbed]

WSJ News Exclusive | KKR’s Envision Weighs Handing Control to Creditors in a Bankruptcy

Envision Healthcare is exploring a chapter 11 bankruptcy that would give control of the struggling physician-staffing company to its creditors.

www.wsj.com

Do CMGs realistically exit the market through bankruptcy? I fully expect them to get ‘restructured’ and re-branded with all the same players rather than go extinct.

 

[valianteffort]

Do CMGs realistically exit the market through bankruptcy? I fully expect them to get ‘restructured’ and re-branded with all the same players rather than go extinct.

pretty sure this is going to happen. bankruptcy for envision means nothing positive to us lowly ER docs. probably will break apart into smaller companies and try to undercut pay even more to make margins bigger

 

[namethatsmell]

pretty sure this is going to happen. bankruptcy for envision means nothing positive to us lowly ER docs. probably will break apart into smaller companies and try to undercut pay even more to make margins bigger

Some degree of corporate chaos and disorder would ensue. Even if just resulted in more staffing companies popping up, that would lead to increased competition for docs. All of this would be good for pit docs.

If I were currently working in an envision shop I'd be quietly talking with my fellow docs to gain some consensus about forming an SDG vs at least becoming hospital employees as a unified group and be ready to quickly approach hospital C-suite in the event that envision actually dissolves. If you quickly go to C-suite with an offer for you all to stay, that's some pretty solid leverage to negotiate with. But you'll need to act quick in that eventuality as otherwise the suits will be liable to panic and if you don't offer them a solution quickly than it becomes more likely that somebody outside your group of docs will make the decision for you re: fate of your site.

 

[xaelia]

If I were currently working in an envision shop I'd be quietly talking with my fellow docs to gain some consensus about forming an SDG vs at least becoming hospital employees as a unified group and be ready to quickly approach hospital C-suite in the event that envision actually dissolves.

I'd also be wondering if paychecks are still going to keep showing up.

 

[RustedFox]

Anybody got a non paywalled link for our reading?

 

[RuralEDDoc]

I'd also be wondering if paychecks are still going to keep showing up.

That’s the key issue here. Reimbursement is revenue and claims cycle based and delayed by many months. Groups have to walk in with several million in cash ready to cover salaries until insurance funds arrive. That would smother many potential start ups that don’t have the capital.

 

[turkeyjerky]

Anybody got a non paywalled link for our reading?

https://archive.is/6ozzU

 

[southerndoc]

If I was working for Envision, I would try to secure employment somewhere else very fast. I would be worried they wouldn't make payroll... or worse, not fulfill their malpractice insurance obligations.

We've been saying it for over a year. Looks like the writing on the wall has been amplified significantly.

 

[fiji128]

Anybody got a non paywalled link for our reading?

KKR & Co.’s Envision Healthcare Corp. is exploring a chapter 11 bankruptcy that would give control of the physician-staffing company to its creditors, according to people familiar with the matter.

Envision is in negotiations with some of its lenders about a restructuring that could result in KKR, its private-equity owner, writing down its stake, these people said. The staffing company has struggled with debt, litigation and other headwinds since KKR bought it in 2018 for roughly $6 billion, excluding debt, in one of the private-equity firm’s biggest healthcare deals.

Large creditors to Envision have been signing nondisclosure agreements to gain access to the company’s financial details and discuss a recapitalization, the people said. Some proposals include transactions where lenders would swap debt for equity, diluting or wiping out KKR’s equity stake in the process, they said.

Envision could file for chapter 11 protection as part of the recapitalization efforts, although it is possible that the company will be able to complete the transactions out-of- court and avoid filing for bankruptcy, the people familiar with the matter said.

The Nashville, Tenn.-based company missed a roughly $40 million interest payment due Saturday under some of its unsecured bonds, the people said, kicking off a grace period that could trigger a default if Envision fails to pay within 30 days.

Envision and KKR declined to comment.
Difficulties for the staffing company include a high debt burden and continuing regulatory pressures, according to an S&P Global Ratings report published last year. Envision’s business took a hit from declining emergency-room visits during the Covid-19 pandemic and the company has struggled with contract battles against UnitedHealth Group Inc. after it was cut out of the insurer’s network.

Envision faces around $700 million in annual cash interest expenses, according to the people familiar with the matter, who added that its outsourced-physician unit notched a roughly $40 million loss for the 12 months ended Sept. 30.

The company missed a March 31 deadline to report its fourth-quarter financial results, triggering a technical default under its loans, The Wall Street Journal previously reported.
One source of financial stress is an intercompany loan from Envision’s ambulatory- services unit, AmSurg Corp., to the core Envision business that comes due at the end of April, according to the people familiar. AmSurg made up roughly half the company’s total revenue as of 2021.
Last year, Envision raised more funds secured against AmSurg and managed to cut roughly $600 million in debt after moving its AmSurg assets out of some creditors’ reach to secure new loans.

Current trading prices of Envision’s debt securities imply that KKR’s stake in the company might be worthless, the people familiar with the matter said. Many of Envision’s bonds and loans are trading at less than 20 cents on the dollar, according to market-data platform Solve Advisors Inc., a sign that investors expect to get back only a fraction of what they invested in the company.

 

[FlaminHotER]

Holy sheeet

I pray any of our colleagues working for envision have signed else where

The ship is sinking fast and the rats are jumping ship

 

[xaelia]

Holy sheeet

I pray any of our colleagues working for envision have signed else where

The ship is sinking fast and the rats are jumping ship

Not just EM docs –

Radiology provider Envision Healthcare considers handing control to creditors in bankruptcy

The multispecialty group—which employs about 500 radiologists—is exploring chapter 11 as it grapples with a heavy debt load.

radiologybusiness.com

 

[cyanide12345678]

So who are the major creditors of envision? Who essentially becomes the next overlord for the staffing group when KKR is diluted?

Are team health usacs and others experiencing similar situations right now?

 

[Tenk]

Get wrekt. I’m always amazed at how people can just gamble millions to billions of dollars and not end up in prison.

 

[HemorrhagicShock]

So who are the major creditors of envision? Who essentially becomes the next overlord for the staffing group when KKR is diluted?

Are team health usacs and others experiencing similar situations right now?

Exactly my questions as well - who are the major creditors for Envision?

 

[xaelia]

Exactly my questions as well - who are the major creditors for Envision?

This guy seems to know what's going on:

Envision rewrites book on liability management exercises

Editor's note: The following was originally published to LevFin Insights and CreditSights on Sept. 9.

www.linkedin.com

 

[RustedFox]

This guy seems to know what's going on:

Envision rewrites book on liability management exercises

Editor's note: The following was originally published to LevFin Insights and CreditSights on Sept. 9.

www.linkedin.com

TL/DNR it for me?

 

[Jabbed]

TL/DNR it for me?

Not my area, so I’ll redact this when someone more technical comes along.

Envision started issuing new debt through their ambulatory surgery company (AmSurg), which has been more profitable. As part of that deal, they structured AmSurg as an unrestricted subsidiary, which means that it is not liable for the parent company’s debts. This is technically not legal and can be litigated. They then started loaning capital to Envision Health that was secured, meaning that it’s backed by physical assets. This essentially diluted the value of Envision Health’s debt further. At this point they began selectively offering creditors the chance to trade debt from Envision Health (poor company) with AmSurg (rich company) at a discount. As part of the deal, you have to agree to not litigate them for everything that they’ve done to you at this point. They did this in three separate rounds. As more and more people take the deal, the terms get more and more unfavorable for creditors and the value of their debt decreases until the last unlucky few are left holding the bag on what is essentially bad secured debt with stripped assets.

Soo.. TLDR they forced everyone to give them more money and extend the deadline for their debt by artificially devaluing their assets and strong-arming creditors into a pyramid scheme.

“If you’re not first, you’re last”

 

[FlaminHotER]

CMGs might end up destroying themselves from their own greed and ineptitude

 

[DocEspana]

Some degree of corporate chaos and disorder would ensue. Even if just resulted in more staffing companies popping up, that would lead to increased competition for docs. All of this would be good for pit docs.

If I were currently working in an envision shop I'd be quietly talking with my fellow docs to gain some consensus about forming an SDG vs at least becoming hospital employees as a unified group and be ready to quickly approach hospital C-suite in the event that envision actually dissolves. If you quickly go to C-suite with an offer for you all to stay, that's some pretty solid leverage to negotiate with. But you'll need to act quick in that eventuality as otherwise the suits will be liable to panic and if you don't offer them a solution quickly than it becomes more likely that somebody outside your group of docs will make the decision for you re: fate of your site.

Less effective in Florida HCA where Envision *is* the hospital administration as well as the ER CMG.

 

[Birdstrike]

Anyone know how many millions the administrators will flee with after spectacularly failing in their duty to run their company?

 

[RustedFox]

Less effective in Florida HCA where Envision *is* the hospital administration as well as the ER CMG.

SW FL checking in.
My admins hate envision.
For all the right reasons.

 

[DocEspana]

SW FL checking in.
My admins hate envision.
For all the right reasons.

Bless you. Regular South Florida is not so lucky

 

[dantt]

Not my area, so I’ll redact this when someone more technical comes along.

Envision started issuing new debt through their ambulatory surgery company (AmSurg), which has been more profitable. As part of that deal, they structured AmSurg as an unrestricted subsidiary, which means that it is not liable for the parent company’s debts. This is technically not legal and can be litigated. They then started loaning capital to Envision Health that was secured, meaning that it’s backed by physical assets. This essentially diluted the value of Envision Health’s debt further. At this point they began selectively offering creditors the chance to trade debt from Envision Health (poor company) with AmSurg (rich company) at discount. As part of the deal, you have to agree to not litigate them for everything that they’ve done to you at this point. They did this in three separate rounds. As more and more people take the deal, the terms get more and more unfavorable for creditors and the value of their debt decreases until the last unlucky few are left holding the bag on what is essentially bad secured debt with stripped assets.

Soo.. TLDR they forced everyone to give them more money and extend the deadline for their debt by artificially devaluing their assets and strong-arming creditors into a pyramid scheme.

“If you’re not first, you’re last”

I always wondered why the lenders would allow such things as the company stripping assets...looks like it is not totally legal and opens up massive lawsuits. Moral of the story is to not play with them but I guess greed talks.

 

[EctopicFetus]

I always wondered why the lenders would allow such things as the company stripping assets...looks like it is not totally legal and opens up massive lawsuits. Moral of the story is to not play with them but I guess greed talks.

The creditors dont. When envision did this there were threatened suits. It’s amazing that the loans were not so tightly packaked that this was remotely allowed to happen. Note those Envision loans come due in 2025. USACS loans are due in 2026. Their death is near. TH isnt too far from its likely collapse either. Interesting times ahead. Vituity seems like it will be ok reportedly no debt. Some new unscrupulous organization is likely to rise up. My guess IES which is a mini envision run by old envision scum.

 

[xaelia]

My guess IES which is a mini envision run by old envision scum.

My guess is Sound.

As someone above mention, it needs to be someone with deep enough pockets to pay the docs before accounts payable can manifest.

 

[Birdstrike]

It's incredible that staffing groups can spread across the country like a predatory fungus, destroy and displace countless physician-owned groups with the promise of "doing it better, more efficiently," then collapse and die spectacularly in the process, leaving a wasteland in their wake. They should be required to reestablish all the SDGs they destroyed and pay restitution to the physicians whose contracts they stole under false pretenses.

 

[Arcan57]

I always wondered why the lenders would allow such things as the company stripping assets...looks like it is not totally legal and opens up massive lawsuits. Moral of the story is to not play with them but I guess greed talks.

From what I remember about an article published when AmSurg was first separated from Envision to shield assets, t It inferred that the lenders were careless in checking over the contract, although it made everyone involved sound greedy and stupid. LSearching for the Bloomberg article revealed the timeline on Envision imploding is kinda wild. They bought/merged with AmSurg in 2016, went private in 2018 when KKR bought Envision for $9.9b and loading 70% of that debt back onto Envision. In April 2020, they were already hiring firms to restructure their debt (this would have been months before COVID would effect their revenue) mostly due to out-of-network billing issues. By 2022, Bloomberg was reporting on the AmSurg separation.

Envision Case Study

 

[HemorrhagicShock]

The creditors dont. When envision did this there were threatened suits. It’s amazing that the loans were not so tightly packaked that this was remotely allowed to happen. Note those Envision loans come due in 2025. USACS loans are due in 2026. Their death is near. TH isnt too far from its likely collapse either. Interesting times ahead. Vituity seems like it will be ok reportedly no debt. Some new unscrupulous organization is likely to rise up. My guess IES which is a mini envision run by old envision scum.

This is reassuring to hear as I'm currently looking at some Vituity positions. They seem to be a safe option where at least there's some modicum of transparency on the books. I've spoken with enough Vituity partners who are happy with the partnership structure that I'm likely going to take a position with them.

 

[dantt]

The creditors dont. When envision did this there were threatened suits. It’s amazing that the loans were not so tightly packaked that this was remotely allowed to happen. Note those Envision loans come due in 2025. USACS loans are due in 2026. Their death is near. TH isnt too far from its likely collapse either. Interesting times ahead. Vituity seems like it will be ok reportedly no debt. Some new unscrupulous organization is likely to rise up. My guess IES which is a mini envision run by old envision scum.

So what happened with the lawsuits? If they're not resolved by now, what does the bankruptcy do? I just find it hard to believe all of these sophisticated investors, banks, large financial institutions, would allow such loose contracts. Greed? Or this is just how the big boys play and this is what it looks like when the ship starts sinking?

 

[DocEspana]

I think it was said earlier but was also skirted past really fast. The business model for many of these companies is explicitly that if you can bundle up enough 'failing' assets together you can make them into their own legal entity (Envision already did this) and sell just those ****ty assets to whoever thinks they can squeeze money out more heartlessly. The reality is Envision - and they aren't great - don't want to be known as the grim reaper of emergency medicine. So they keep their profitable places, they sell off "envision 2" (or whatever they call it) to a company that is the grim reaper inside the hospital industry like Stewart OR they sell their current debt to another company who will pay off that debt in exchange for an even LARGER debt. A cycle that repeats ad infinitum until only grim reapers want them

These groups sell themselves to investors who always want to avoid being the last person holding the bag, or if every investor thinks they are too toxic, they sell themselves to hospital organizations that *are* the grim reaper and exists to make closing hospitals into a profitable venture.

 

[Arcan57]

So what happened with the lawsuits? If they're not resolved by now, what does the bankruptcy do? I just find it hard to believe all of these sophisticated investors, banks, large financial institutions, would allow such loose contracts. Greed? Or this is just how the big boys play and this is what it looks like when the ship starts sinking?

Some creditors took the deal, some lawsuits are ongoing. If you ignore the fact that healthcare is a (relatively) tightly regulated industry with major stakeholders who are very effective at protecting the status quo, when all these deals were going down it was the perfect ecosystem to be "disrupted" by private equity investment. Growing business (baby boomers aging), inefficient revenue capture (all those docs billing levels 3s when they could be billing crit care plus extortionary out of network charges), rapidly expanding CMG contracts (giving the illusion of the possibility of perpetual growth for any single CMG), and the fact that they'd successfully done it multiple times before made all these deals seem like non-brainers at the time. EM had a string of legislative victories regarding reimbursement for emergency care. Insurers had been largely focused on bringing hospitals to heel and were fighting doc groups at a local level, not at a state or national level. And to a much more minor extent there was still this pipedream that you could bundle all the physician services a hospital uses into a single staffing group and somehow make unprofitable (inpatient medicine) care profitable.

Unfortunately the profits that made Envision attractive to PE required it to be able to charge OON rates in perpetuity and the timing on the debt meant that revenue had to stay high during the initial period of the merger in order to service the debt. Neither one of those things happened.

 

[John Rawls]

KKR bought Envision for $9.9b and loading 70% of that debt back onto Envision

Envision Case Study

This is why I'll never make it. A businessman can buy a company with loans and then force the company to take over those loans, meanwhile I'm over here busting my butt for chump change.

 

[emergentmd]

VC plays by different rules than you or I can.

A VC can swoop in, buy a company for 7Bil. Take an 8B loan on the new company b/c someone is going to think its a good deal via bonds, equity, etc. No way new company will service this debt. VC got their money already. If they find a buyer, they get a 2nd bite from the apple. If they can't, they will file bankruptcy and pick up whatever is left towards a new company or move on. Maybe a 3rd bite if they can reorganize and sell more bonds/take public. No matter what happens, they walk away winners most of the time.

Imagine if I could buy rental property for 1M. Find a bank to loan me 2M on this property. Foreclose on the property with the outcome being wiping out the 2M loan completely while retaining the property, give the home back to the bank without any credit risks, or negotiating better terms lowering the 2M debt to 100K.

They always come out ahead. High return, low risks.

 

[EctopicFetus]

VC plays by different rules than you or I can.

A VC can swoop in, buy a company for 7Bil. Take an 8B loan on the new company b/c someone is going to think its a good deal via bonds, equity, etc. No way new company will service this debt. VC got their money already. If they find a buyer, they get a 2nd bite from the apple. If they can't, they will file bankruptcy and pick up whatever is left towards a new company or move on. Maybe a 3rd bite if they can reorganize and sell more bonds/take public. No matter what happens, they walk away winners most of the time.

Imagine if I could buy rental property for 1M. Find a bank to loan me 2M on this property. Foreclose on the property with the outcome being wiping out the 2M loan completely while retaining the property, give the home back to the bank without any credit risks, or negotiating better terms lowering the 2M debt to 100K.

They always come out ahead. High return, low risks.

Yes. Also keep in mind they aren’t risking their money. Look at who invested with them. Pensions etc. This isnt mom and pop saving $50/month.

 

[dantt]

VC plays by different rules than you or I can.

A VC can swoop in, buy a company for 7Bil. Take an 8B loan on the new company b/c someone is going to think its a good deal via bonds, equity, etc. No way new company will service this debt. VC got their money already. If they find a buyer, they get a 2nd bite from the apple. If they can't, they will file bankruptcy and pick up whatever is left towards a new company or move on. Maybe a 3rd bite if they can reorganize and sell more bonds/take public. No matter what happens, they walk away winners most of the time.

Imagine if I could buy rental property for 1M. Find a bank to loan me 2M on this property. Foreclose on the property with the outcome being wiping out the 2M loan completely while retaining the property, give the home back to the bank without any credit risks, or negotiating better terms lowering the 2M debt to 100K.

They always come out ahead. High return, low risks.

The fascinating thing to me is the part where they find a bank to give them a 2M unsecured loan; or rather get a 2M secured loan and pull out the collateral anyway.

 

[bravotwozero]

If envision is going for chapter 11 bankruptcy, that basically means it continues to exist, and just restructures its debt.

This company is like a friggin cockroach.

 

[TooMuchResearch]

If envision is going for chapter 11 bankruptcy, that basically means it continues to exist, and just restructures its debt.

This company is like a friggin cockroach.

Enter EMCARE 2: EMCARE Harder.

Didn't they also so some business as EMI?

 

[RustedFox]

Enter EMCARE 2: EMCARE Harder.

Didn't they also so some business as EMI?

Envision 3: Vision with a Vengeance

 

[JacobMcCandles]

Entegrity: We Don’t Know Who EMCARE or Envision is.

 

[FlaminHotER]

Another bank is about to collapse

There ain’t no way Envision, TH, usucks, and the rest of the PE scum come out unscathed

 

[RustedFox]

Enter EMCARE 2: EMCARE Harder.

Didn't they also so some business as EMI?

I really, really, really wish I had thought of this joke.

 

[RustedFox]

Another bank is about to collapse

There ain’t no way Envision, TH, usucks, and the rest of the PE scum come out unscathed

Which?

 

[FlaminHotER]

Which?

First Republic in Ca

94.4% price decrease from $121.54 to $6.79.

 

[RustedFox]

First Republic in Ca

94.4% price decrease from $121.54 to $6.79.

Wowweeee.

 

[FlaminHotER]

Wowweeee.

Yeah

and the fed will have to has raise rates next meeting in early May

 

[bravotwozero]

Yeah

and the fed will have to has raise rates next meeting in early May

They don’t have to. If anything the bank collapse is a reason not to.

 

[gruemd]

They don’t have to. If anything the bank collapse is a reason not to.

Eh, J Pow has made it clear they're gonna do what they need to do for the long term economy and that there is going to be some pain from it. Probabilities are still 75% favoring another rate hike next week.

 

[Siggy]

They don’t have to. If anything the bank collapse is a reason not to.

Why?

These are the most telegraphed rate increases in history. Interest rate risk isn't exactly a novel or unknown concept.

 

[bravotwozero]

Why?

These are the most telegraphed rate increases in history. Interest rate risk isn't exactly a novel or unknown concept.

I didn’t say it was a novel concept?

The fed’s justification for rate increases has been ‘inflation too high because economy too hot therefore we will raise interest rates’ . Banking crises are only going to add to economic woes, so I fail to see that being a legitimate justification to raise interest rates….