Envision Healthcare Feels Liquidity Crunch With Surgery Centers Shut

(Bloomberg) -- Envision Healthcare Corp.’s medical staffing business is in free fall as patients skip hospital care amid the Coronavirus crisis, putting pressure on the indebted company’s liquidity.

KKR & Co.-backed Envison, which carries over $7 billion of debt amassed through one of the biggest leveraged buyouts in recent years, reported steep drops at its care facilities. In just two weeks, it suffered declines of 65% to 75% in business at its 168 open ambulatory surgical centers, compared to the same period last year, the company said in a private report to investors. About 90 centers are closed.

The spread of Covid-19 forces patients to forgo surgeries and stay out of hospitals. The cost pressures on Envision will continue to mount for the foreseeable future as the medical staffing company faces further closures and patient cutbacks due to the virus.

To protect from future losses and provide financial flexibility, Envision fully drew on its revolving credit facility, according to people familiar with the matter who asked not to be identified discussing the private details. The company is taking additional cost cutting measures including deferring bonus payments, it told investors.

Health-care companies across the country face the potential for significant revenue loss due to patient’s deferral of elective surgeries or in-office visits. Many are forced to shut down units or quarantine staff who are exposed or at-risk of exposure to the virus.

“Our ongoing response to the pandemic includes expanding the use of virtual health services, deploying clinical teams to areas hit hardest and securing crucial personal protective equipment to keep clinicians and patients safe,” a representative for Envision said in an emailed statement to Bloomberg.

A representative for KKR didn’t immediately provide comment.

“As facilities remain shut and high margin elective procedures are halted, investors will be confronted with computing cash burn rates for many providers like Envision,” Mike Holland of Bloomberg Intelligence said in an interview.

Management also said it may need additional financing to support liquidity if conditions worsen, the people said. Envision expects the business will operate on negative free cash flow. The company reported $650 million in cash on its balance sheet at the end of March, $175 million of which is restricted from corporate use.

Call for Help

U.S. health industry leaders expect Congress will need to send billions of dollars more to hospitals and doctors this year, even before any of the earmarked $100 billion in emergency funds cleared last week have been doled out. Hospital and doctors’ groups are pushing to get the emergency funds to providers immediately while also persuading lawmakers to provide more money.

Hospitals and surgery practices in particular have been warning they’re short of cash needed to pay staff partly due to the halt on most elective surgeries, which are more lucrative for health-care providers than emergency services typically related to treatment for Covid-19.

Read More: Medical Groups Eye More Aid Before First $100 Billion Doled Out

The $100 billion portion for health-care facilities and providers in the $2 trillion stimulus package “will offer respite for some, but with exact eligibility criteria yet to be defined, uncertainty lingers around whether those amounts will be enough to stave off liquidity events for highly-leveraged, and soon-to-be cash poor operators,” Holland said.

Debt Falls

Envision’s $7.4 billion of debt traded to record lows on Tuesday after the news of the impact and revolver draw. The company’s bonds due 2026 fell over 20 cents on the dollar to a record low of about 24.25 cents in New York, according to Trace bond trading data. Those bonds were trading close to par in April of last year.

Its term loan, meanwhile, slipped more than 14 cents to around 52 cents, according to people familiar with the pricing.

With the pandemic expected to test the limits of the U.S. health-care system, hospitals saddled with billions of dollars in debt are the most susceptible to further losses in their share prices, according to analysts at JPMorgan. Publicly traded Community Health Systems Inc. and Tenet Healthcare Corp. also carry high levels of debt and face significant strains on liquidity.

Envision was built through a series of acquisitions, culminating in a merger with AmSurg, a large surgery center and physician staffing group in 2016. Private equity giant KKR bought the combined company last October for $9.5 billion, including debt, in one of the largest buyouts at the time.

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