(Bloomberg) — Wellpath Holdings Inc., one of the largest providers of health-care services to prisons and jails across the US, is preparing to file for bankruptcy after struggling with an elevated debt load and high labor costs, according to people with knowledge of the matter.
The company, owned by H.I.G. Capital, failed to repay a credit facility that expired on Oct. 1 and deferred interest payments on its other debt after entering a forbearance agreement with lenders, according to Moody’s Ratings. The credit grader said it views the actions as a default.
A bankruptcy filing, which would keep the company operating while it restructures its debt, could materialize in the coming days, said the people, who asked not to be identified because the discussions are private.
Representatives for Wellpath and H.I.G. did not respond to requests for comment.
Nashville, Tennessee-based Wellpath is among a group of private equity-owned companies in the prison services industry that have struggled under heavy debt loads in recent years. Phone provider Aventiv Technologies, which is backed by Platinum Equity, is looking to sell itself to avoid a potential bankruptcy filing, Bloomberg previously reported.
H.I.G. Capital created Wellpath through the merger of Correct Care Solutions, a company it acquired in 2018, and Correctional Medical Group Cos., a competitor that was already in its portfolio. The buyout firm has made several investments in the prison industry: it currently owns TKC Holdings Inc., which provides commissary services, and is a former owner of Securus Technologies, the phone company now known as Aventiv.
The prison services sector has historically attracted interest from private equity firms because of its fragmented nature, which created opportunities for consolidation, and reliance on government contracts. The industry, however, has faced a number of challenges in recent years, including higher borrowing costs as well as scrutiny from public officials, inmate advocacy groups and investors that apply environmental, social and governance screenings.
Moody’s placed Wellpath on default status earlier this week, citing the forbearance agreement and cash flow pressures tied to high labor costs and poor earnings. S&P Global Ratings has also slashed the company’s ratings, citing weak financial performance and high debt levels. Wellpath generated revenues of approximately $2.4 billion for the twelve months ended June 30, 2024, according to Moody’s.
H.I.G. funded the CCS buyout with $610 million of leveraged debt. Its $500 million first-lien loan due October 2025 is quoted at around 61 cents on the dollar, while a lower-ranking $110 million loan due in 2026 is quoted at around 40 cents, according to data compiled by Bloomberg.
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