Cano Health Enters Restructuring Support Agreement with a Significant Majority of its Lenders to Strengthen Financial Position
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Insights
The Restructuring Support Agreement (RSA) that Cano Health has entered into is a critical step in their financial restructuring process. The agreement with lenders holding a majority of the company's debt signals a strong creditor support, which is essential for the success of any restructuring plan. The commitment of $150 million in debtor-in-possession financing is noteworthy as it provides Cano Health with the liquidity necessary to maintain operations during the Chapter 11 proceedings. This is a positive indicator for the company's ability to continue its transformation plan without immediate liquidity concerns.
From a financial perspective, the conversion of nearly $1 billion in secured debt to new debt and equity is a significant alteration of the capital structure. This could lead to dilution of existing equity but also presents a potential upside for new investors if the restructuring leads to a turnaround. Stakeholders should monitor the emergence from Chapter 11, as the timing and effectiveness of the reorganization will impact the value of Cano Health's equity and debt securities.
Cano Health's focus on its core Florida Medicare Advantage and ACO REACH lines of business after divesting operations in other states suggests a strategic narrowing of its market scope to improve efficiency and financial performance. The expected annualized cost reductions of approximately $290 million by the end of 2024 indicate aggressive cost management, which could enhance competitiveness and profitability in the long-term. For the healthcare sector, particularly value-based primary care, such cost optimization strategies are essential in maintaining sustainable operations amidst rising healthcare costs.
The potential for strategic partnerships and the solicitation of offers, including the sale of the company, as mentioned in the RSA, could reshape the competitive landscape. It is important for stakeholders to evaluate how these strategic moves align with industry trends towards consolidation and partnership, which can lead to economies of scale and improved market positioning.
The initiation of prearranged voluntary Chapter 11 proceedings allows Cano Health to restructure its financial obligations under court supervision while continuing to operate. The filing of 'first day' motions is a standard procedure to ensure the uninterrupted continuation of business operations, including paying wages and maintaining vendor relationships. The expeditious court approval of a Plan of Reorganization and Disclosure Statement, supported by a majority of creditors, will be pivotal in determining the speed and efficiency of Cano Health's restructuring.
Furthermore, the RSA's provision for the solicitation of strategic partnerships and potential sale offers must be carefully structured to comply with legal and regulatory requirements. The outcome of such solicitations could have significant legal implications for the company's future operations and governance. Stakeholders should be aware of the legal complexities that may arise during this restructuring phase, which can influence the timeline and success of the reorganization efforts.
Positions the Company to Advance Its Ongoing Transformation Plan Designed to Significantly Reduce Costs, Enhance Productivity, and Improve Cash Flow
Receives Commitment for
Ensures Patients Continue to Receive High-Quality Care Across Medical Centers
To facilitate this restructuring, Cano Health has initiated prearranged voluntary Chapter 11 proceedings in the
Mark Kent, CEO of Cano Health, said, "We have taken decisive actions over the past few months to advance our previously disclosed Transformation Plan and strengthen our financial position. By entering this court-supervised restructuring process, we are positioning the Company to achieve those goals on an accelerated basis and focus on what we do best – improving health outcomes for patients at a lower cost. I am confident we will emerge from this process a stronger organization with the necessary resources in place to continue delivering the quality of care our patients expect and deserve. We appreciate the support of the majority of our creditors as we pursue this goal."
Since Mark Kent assumed the permanent CEO role in August 2023, Cano Health has significantly advanced and accelerated its strategy to focus on its core Florida Medicare Advantage and ACO REACH lines of business, including successfully divesting operations in
Cano Health is filing with the Court a series of customary "first day" motions to maintain business-as-usual operations on all fronts:
- Paying associate wages, including for its doctors and nurses, without interruption;
- Continuing operations and honoring obligations to its affiliate physician groups;
- Ensuring patients at its clinics continue to receive quality value-based healthcare; and
- Seeking authority to pay the existing pre-petition claims of certain vendors that are critical to the health and safety of Cano Health's patients and critical to the operation of the Company's medical centers. The Company has authority to continue making ordinary course payments for all authorized goods and services provided on or after the filing date.
Court approval of these routine motions, which the Company expects to receive in short order, will help facilitate a smooth transition into the process and ensure the Company's medical centers and its physician affiliates can continue providing uninterrupted service to all patients.
Given the broad extent of creditor support, Cano Health expects to file and receive Court approval of a Plan of Reorganization and Disclosure Statement expeditiously, while also exploring paths to maximize value, and it expects to emerge from the restructuring process in the second quarter of 2024.
The RSA provides for the conversion of nearly
Additional information about Cano Health's restructuring proceedings is available at https://www.kccllc.net/CanoHealth. Creditors with questions may contact the Company's Claims Agent, Kurtzman Carson Consultants LLC ("KCC"), at CanoHealthinfo@kccllc.com and (888) 251-2679 (
Weil, Gotshal & Manges LLP is serving as legal counsel; Houlihan Lokey Capital Inc. is serving as investment banker; and AlixPartners LLP is serving as financial advisor to Cano Health.
The Ad Hoc Lender Group is represented by Gibson, Dunn & Crutcher as legal counsel, Evercore as investment banker, and Berkeley Research Group as financial advisor.
About Cano Health
Cano Health (NYSE: CANO) is a high-touch, technology-powered healthcare company delivering personalized, value-based primary care to approximately 310,000 members. Founded in 2009, with its headquarters in Miami,
Forward Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to future events and involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and could materially affect actual results, performance or achievements. These forward-looking statements generally can be identified by words such as "will," "shall," "may," "expects," "anticipates," "believes," "foresees," "forecasts," "plans," "seeks," "intends," "estimates" or other words or phrases of similar import. Such statements include, without limitation, statements regarding: (i) the RSA, the transactions contemplated thereby, and the expected benefits thereof, including that it will enable the Company to substantially reduce its debt and position the Company to achieve long-term success; (ii) the Company's Chapter 11 proceedings, including, without limitation, the outcome thereof and the Company's expectations as to receipt of and timing for Court approvals and the timing of its emergence from the proceedings, as well as the expected benefits of the proceedings, such as that they will strengthen the Company's financial condition, position the Company to advance its ongoing Transformation Plan that is designed to significantly reduce costs, enhance productivity, and improve cash flow, ensure patients continue to receive high-quality care across medical centers and improve health outcomes for patients at a lower cost; (iii) the availability of liquidity from the Company's debtor-in-possession financing and the various conditions to which such debtor-in-possession financing is subject and the risk that these conditions may not be satisfied for various reasons, including for reasons outside of the Company's control, as well as the Company's planned uses of such funds, including, without limitation that the new capital will provide sufficient liquidity to support the Company's ongoing operations throughout the restructuring process; (iv) the Company's execution of one or more aspects of its Transformation Plan, including the benefits from such activities, including our expectations regarding achieving approximately
The Company cautions that trading in the Company's securities during the pendency of the Chapter 11 proceedings is highly speculative and poses substantial risks. Trading prices for the Company's securities may bear little or no relationship to the actual recovery, if any, by holders of the Company's securities in the Chapter 11 proceedings. Holders of shares of the Company's Class A common stock could experience a complete loss on their investment, depending on the outcome of the Chapter 11 proceedings.
Media Contacts
David Zarco
mediarelations@canohealth.com
Kekst CNC
Ruth Pachman / Nicholas Capuano
ruth.pachman@kekstcnc.com / nicholas.capuano@kekstcnc.com
Investor Contact
Cano Health IR
investors@canohealth.com
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SOURCE Cano Health, Inc.
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