CLO portfolios may need check-up as healthcare sector continues to deteriorate

Mariana Santibanez

Madalina Iacob

Reimbursement challenges and high labour costs are expected to continue to drive restructuring activity among healthcare companies this year following a busy 2023.

“We see the pipeline here as being fairly robust in terms of both healthcare services and pharmaceuticals,” says Daun Chung, managing partner at MTS Health Partners. “Whether there are liability management transactions to buttress liquidity and extend maturities, or broader restructurings, 2024 is gearing up to be just as active in the restructuring space as 2023.”

The impact on CLO portfolios can already be seen with the recent Chapter 11 filing of Cano Health. The Florida-based primary care physician group was held by 220 CLOs, according to CLO-i, with USD 320m of principal impacted.

The managers most affected were Anchorage (USD 126.5m of aggregated exposure) and Carlyle with USD 62m.

“There’s a natural level of distress”

Clare Moylan, Co-founder | Gibbins Advisors

Companies on the services side of the healthcare industry have been especially vulnerable to reimbursement and labour cost pressures. Already this year, several healthcare groups have gone to market to tackle upcoming maturities.

Another physicians practice group, Radiology Partners, is looking to raise at least USD 300m of preferred equity to facilitate a deal with lenders to extend 2025 debt maturities. USD 870m of its loans are held across 412 CLOs. AccentCare, meanwhile, is in the market to secure a USD 175m facility backstopped by existing first lien lenders. CLOs hold more than USD 500m of collateral.

Last year, 50 healthcare companies with liabilities over USD 10m filed for bankruptcy, more than double the 25 bankruptcies in 2022, according to Debtwire data.

Clare Moylan, co-founder of healthcare advisory firm Gibbins Advisors, says the number of hospital bankruptcies spiked in 2023 in large part because many COVID-19 related government protections ended. “Now there’s a natural level of distress, so we could see the elevated level of bankruptcy filings that we saw in 2023 continue,” she says.

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