Healthcare Loans: Five Tips for a Potentially Successful Workout
By now, most people that follow financial news are aware that the amount of troubled healthcare related companies are on the rise, which by its very nature, causes more distressed healthcare related debt in the market. Although much of the reporting has focused on hospital systems, including community based and rural hospitals, filing for bankruptcy, other healthcare related entities are finding themselves in distress and may potentially be crossing the threshold of a bankruptcy court.
Run a simple Google search under "distressed healthcare companies," and you will find a wide range of analysis as to what may be causing financial distress in the healthcare market: (1) uncertainty with the fate of the Affordable Care Act ("ACA");1 (2) reduction in reimbursement rates from both insurance companies and the federal government; (3) lack of Medicaid expansion in certain states; (4) the rising cost of providing care; and (5) the increased complexity in the regulatory landscape, just to name a few.
At the time of rising distressed healthcare debt, it also appears that more lenders, both traditional and non-traditional, are entering the healthcare market in hopes of opening up new avenues of profitability. With new lenders entering the market, there will be new loans made, but this also raises the likelihood that if some of these loans go bad, lenders may have to handle a distressed healthcare credit.
1) Start Early and Get Your Own Information. At the first sign of distress, whether that is a covenant default or some other financial trigger indicating trouble, think about exercising any rights you may have to conduct a field audit. Although you may trust the borrower's CFO, she/he may be unaware of an issue festering within the company. An objective third party could notice the issue and raise it to a level of concern potentially minimizing the issue's impact on the borrower.
Download the full article, "Healthcare Loans: Five Tips for a Potentially Successful Workout" written by Patrick Warfield.