Moody’s: Envision Healthcare Faces High Probability of Bankruptcy or Restructuring

Analysts at Moody’s Investors Service have downgraded the debt of Envision Healthcare Corp., saying the physician services and surgery center management company faces such severe cost pressures that it is on pace to run out of cash by the end of 2023 and may need to file for protection from its creditors or otherwise restructure its finances.

In a note to investors last week, Moody’s researchers said they consider a series of financial moves made by Nashville-based Envision’s leaders in April and July to be distressed debt exchanges that require a downgrade of a number of the company’s ratings. Moody’s new C rating for Envision as a whole is the lowest on the firm’s scale and is commensurate with “little prospect for recovery of principal and interest.”

Moody’s said Envision – which employs about 25,000 clinicians, runs more than 250 ASCs and has annual revenues of about $7 billion – is struggling with declining volumes and higher labor costs while also facing the prospect that rising interest rates will nearly double its financing costs. On top of that, analysts said the company’s tussle with insurance titan UnitedHealth looks likely to leave it outside United’s network for the foreseeable future.

Representatives of Envision did not respond to a request for comment on Moody’s commentary. The company has been owned by KKR since 2018, when the private equity firm valued it at nearly $10 billion when including its debt at the time.

“Continuing business pressures and increased interest expense will cause Envision's free cash flow to be significantly negative in 2022 and beyond,” Moody’s analysts wrote. “As a result, Envision faces rising refinancing risk as [its asset-based lending] facility is expiring in October of 2023. While Envision had about $1.4 billion of cash at June 30, 2022, Moody's forecasts that Envision will deplete its cash by the end of 2023.”

A looming financing crush isn’t a prospect for Envision alone: In a recent conversation with Healthcare Innovation, Randy Notes of consulting firm Impact Advisors said many healthcare organizations are facing “pressures on margin from everywhere” and that it’s not unusual for health system CFOs to be eyeing cost cuts equivalent to 10 percent of net patient service revenues.