Exclusive: KKR’s Envision Healthcare hires bank to explore debt restructuring – sources

(Reuters) – Envision Healthcare Corp, a U.S. provider of physicians and other medical staff owned by buyout firm KKR & Co Inc (KKR.N), has hired a financial adviser to explore ways to restructure its $7.5 billion debt pile, people familiar with the matter said.

Envision’s move underscores the struggles facing the medical industry in the wake of the novel coronavirus outbreak. The Nashville, Tennessee-based company’s doctors are needed more than ever as the number of COVID-19 cases soars. Yet its revenue has collapsed as patients who have not contracted the virus are avoiding elective procedures and are staying clear of emergency rooms for fear of being infected.

Envision has hired investment bank Houlihan Lokey Inc (HLI.N) to explore a range of debt restructuring options, according to the sources. Envision’s recent offer to creditors to exchange some of its bonds with loan borrowings will not be enough to keep the company afloat, the sources said. The healthcare services provider will have to make more significant cuts to its debt, the sources added.

The sources cautioned that no decision on a course of action had yet been taken and asked not to be identified because the deliberations are confidential. Envision, KKR and Houlihan Lokey declined to comment.

The novel coronavirus, which first broke out in the Chinese city of Wuhan in late 2019, has infected more than 1.4 million people around the world, killing more than 87,700. In the United States, the number of those infected topped 459,000 on Thursday, with deaths soaring to more than 16,400.

Elective surgeries that Envision provides are among the most lucrative medical procedures, while intensive care, which COVID-19 patients require, is far more expensive. Envision’s business of staffing emergency rooms has also suffered because it gets compensated per visit rather than for the time patients spent there. As a result, the typical two-week period that many COVID-19 patients spend in intensive care is a further drag on Envision’s revenue.

Moreover, it not just the non-COVID-19 patients who are avoiding hospital treatment when possible. Acute care hospitals are postponing non-essential elective surgical procedures to make room for COVID-19 patients. Ambulatory surgery centers are doing the same on the advice of health officials and to conserve surgical supplies, such as personal protective equipment.

Envision said this week that patient volumes are down by as much as 70% in its ambulatory surgery and anesthesia services since the onset of the pandemic, while emergency room visits are down by 30%.

The company also said that it would cut senior staffers’ salaries by 50%, reduce doctors’ pay in areas where patient visits are down, and furlough non-clinical workers.

A portion of Envision’s roughly $5 billion term loan was trading at 60 cents on the dollar this week, according to Refinitiv Eikon data, indicating investor concerns about being paid back in full.

The $2 trillion coronavirus stimulus package approved by Congress includes a $100 billion relief fund to reimburse medical providers. However, many large doctors’ groups such as Envision, which has more than 25,000 physicians, anesthesiologists and other medical staff, are not eligible for aid. The only relief Envision has secured so far is a three-month advance on Medicare fee-for-service payments, which has made little difference to its finances, according to one of the sources.

“The ongoing spread of the coronavirus will make it increasingly challenging for Envision to manage its labor costs, sustain consistent revenue cycle management, and maintain subsidies that it receives from hospitals,” credit ratings agency Moody’s Investors Service Inc said this week.

LEVERAGED BUYOUT DEBT

Much of Envision’s debt is the legacy of KKR’s $9.9 billion leveraged buyout of the company in 2018. Its rival, TeamHealth Inc, which is owned by private equity firm Blackstone Group Inc (BX.N), has also been hit by a severe decline in revenue and cash flow, according to Moody’s.

Envision provides medical staff to more than 1,800 clinical departments in healthcare facilities in 45 states and the District of Columbia. It also owns and operates 257 surgery centers and one surgical hospital in 35 states and the District of Columbia.

The company faced financial threats even before the emergence of the pandemic. U.S. lawmakers are considering proposals that would reduce reimbursement that Envision collects on out-of-network claims. Some patients have criticized it for so-called “surprise billing,” after unknowingly seeing a doctor who was not covered by their health insurance, even though the visit may have occurred in an in-network facility.

In February, Envision replaced its chief executive officer Chris Holden with healthcare services company OptumCare president James Rechtin. The company said this week said it would deploy a total of 200 doctors to the Mount Sinai Health System and nearby hospitals in New York to help with the coronavirus crisis.