21st Century Oncology Loan May Hand Firm to Bondholders
A group of junior lenders to 21st Century Oncology Holdings Inc. (ICC) struck a deal with the operator of cancer-treatment centers in a leverage-reducing transaction that may hand the company to those creditors.
Third Avenue Management LLC and Beach Point Capital Management LP are among bondholders that negotiated the deal disclosed by the company in a regulatory filing today, according to three people with knowledge of the matter. Roystone Capital Management LP is also one of those creditors, said two other people with knowledge of the matter.
The lenders, which own 21st Century’s $376.3 million of 9.875 percent subordinated bonds due April 2017 agreed to provide $17.5 million of term loans, the Fort Myers, Florida-based company said in the filing.
Private-equity owner Vestar Capital Partners Inc. agreed to seek $150 million of new capital through either an offering of either shares or subordinated notes, according to the filing.
The deal comes after the subordinated bonds registered a 2014 loss of 33 percent at their nadir on July 21, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The U.S. Department of Health and Human Services said July 3 that it planned to trim the amount of money that Medicare and Medicaid provide to radiation therapy providers for equipment costs, subject to public comments.
Carol Makovich, a Vestar spokeswoman at Owen Blicksilver Public Relations, Daniel Gagnier, a Third Avenue spokesman at Sard Verbinnen & Co., John Quintanar, a spokesman for Beach Point Capital, and Richard Barrera, a spokesman for Roystone, declined to comment. Sherri Kubesh, a spokeswoman for 21st Century, didn’t immediately return a call seeking comment.
The company initiated the talks with bondholders as it faced mounting liquidity issues after postponing an initial public offering earlier this year, said one of the people, who asked not to be named because the talks are private. Houlihan Lokey and legal firm Paul Weiss Rifkind Wharton & Garrison LLP advised the bondholder group, according to two of the people.
John Gallagher, a Houlihan spokesman, declined to comment. Lisa Green, a spokeswoman for Paul Weiss, didn’t immediately return a phone call and e-mail message left for comment.
Vestar and 21st Century have until the end of August to provide a letter of intent for the financing that’s “reasonably acceptable” to the noteholder group or face a reorganization that would give as much as 95 percent of the company’s equity to the subordinated creditors. The group represents about 72 percent of the subordinated securities, according to the filing.
21st Century expects the transaction to occur in October or November, according to a statement on the company’s website.
The notes rose 4.75 cents on the dollar to 78 cents for a yield of 20.9 percent at 3:14 p.m. in New York, Trace data show. They traded at 55.5 cents on July 21, the data show.
The new loan is secured by different collateral than that backing the 21st Century’s bonds and revolving credit line, allowing the borrowing to go through without consent from holders of the company’s $350 million of 8.875 percent second-lien notes due January 2017, according to two of the people. Those securities rose 4.25 cents on the dollar to 100.75 cents to yield 8.53 percent.
The company expects to report second-quarter revenue in the range of $260 million to $270 million and pro forma adjusted earnings before taxes, interest, depreciation and amortization of $41 million to $44 million, according to the statement.
For the corresponding period last year, sales were $178.1 million and Ebitda was $18.5 million, while 21st Century generated a net loss of $20.1 million, according to data compiled by Bloomberg. The company purchased OnCure Holdings Inc. in October and South Florida Radiation Oncology in February, adding to its therapy centers and physician network.
The company, previously known as Radiation Therapy Services Holdings Inc., and competitors such as Manhattan Beach, California-based Vantage Oncology Inc. have been buffeted by reimbursement cuts as the government tries to pare health-care spending, Kyle Smith, a senior vice president at Jefferies Group LLC, said earlier this month.
Holders of the subordinated notes include Goldman Sachs Group Inc. and Pacific Investment Management Co., Bloomberg data show.
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