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May 23, 2023 – Benefytt Technologies Inc. and 17 affiliated debtors (together “Benefytt” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case No. 23-90566 (Judge Christopher M. Lopez). The Debtors, "a health insurance technology company that develops and operates Medicare and private health insurance marketplaces, agent technology systems and insurance policy administration platforms," are represented by of Jackson Walker LLP. Further Board authorized appointments include: (i) Kirkland & Ellis LLP as general bankruptcy counsel, (ii) Ankura Consulting, LLC as restructuring advisors, (iii) Jefferies Group LLC as investment bankers and (iv) Stretto as claims agent.
* In August 2020 as part of a buyout transaction, the Debtors were taken private by affiliates of private equity house Madison Dearborn Partners, LLC ("Madison Dearborn") with aggregate consideration paid by those affiliates reported to be $451.9mn.
In August 2022, the Debtor and a pair of now former executives agreed to settle an FTC action, with the Debtors agreeing to pay a $100.0mn fine. In a press release announcing the settlement (the SEC also taking offence with the Debtors' then "sham" health insurance products and deceptive websites), the FTC provides:
"The Federal Trade Commission is taking action against healthcare company Benefytt Technologies, two subsidiaries, former CEO Gavin Southwell, and former vice president of sales Amy Brady, for lying to consumers about their sham health insurance plans and using deceptive lead generation websites to lure them in. According to the FTC complaint, Benefytt also illegally charged people exorbitant junk fees for unwanted add-on products without their permission. The proposed court orders require Benefytt to pay $100 million in refunds and prohibit the company from lying about their products or charging illegal junk fees. Southwell and Brady will be permanently banned from selling or marketing any healthcare-related product, and Brady will also be banned from telemarketing."
The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $500.0mn and $1.0bn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) King & Spalding LLP ($6.2mn trade claim), (ii) ProMedia ($5.4mn trade claim) and (iii) Convergence Consulting Group ($775k trade claim).
King & Spalding partner David S Balser is listed as the contact person for the $6.2mn unpaid invoice noted above. Mr. Balser notes as to his work for the Debtors: "Currently defending Benefytt Technologies Inc. in multiple consumer class actions alleging that some third-party distributors misrepresented to consumers the benefits available under the products sold through Benefytt."
Goals of the Chapter 11 Filings
The Devries Declaration (defined below) provides: "Benefytt commenced these chapter 11 cases to implement a comprehensive balance sheet restructuring supported by 100 percent of its term lenders and 60 percent of its revolving lenders, and with a fully committed $35 million debtor-in-possession credit facility…from its existing equity sponsor, Madison Dearborn Partners, LLC…and certain co-investors.
At the conclusion of these chapter 11 cases, Benefytt will split into two companies: an operating company (“OpCo”) and cash flow company (“CFCo”) (with the latter
owning existing contract assets and related income streams, among other assets). Benefytt’s lenders will own CFCo and collect contract income over time, while the Sponsor and certain coinvestors will acquire the operating assets in OpCo through a credit bid of a portion of their secured claims under the DIP Facility. In parallel, with the assistance of their investment banker, Jefferies LLC…Benefytt is pursuing a marketing process to determine if any potential purchaser is willing to provider higher or better value for some or all of Benefytt’s assets.
Restructuring Support Agreement (filed at Docket No. 5)
On May 23, 2023, Benefytt entered into a restructuring support agreement (the “Restructuring Support Agreement”) with the Sponsor and the lenders under the Company’s Term Loan Facility and Revolving Facility (the “Consenting Term Lenders” and “Consenting Revolving Lenders”, respectively). Holders of approximately 100 percent of the Company’s outstanding Term Loan Facility, 60 percent of the Company’s outstanding Revolving Facility, and 100 percent of outstanding equity interests held by the Sponsor executed the Restructuring Support Agreement.
The Restructuring Support Agreement provides, in simple terms, that Benefytt will be split into separate operating and cash flow companies. The Sponsor and certain other coinvestors will own 92.5 percent of the operating company (through a credit bid of certain amounts outstanding under the DIP Facility provided by Phoenix 2023 Merger Sub LLC (the “DIP Lender”)) with CFCo owning the remaining 7.5 percent. The Sponsor and certain other coinvestors have agreed to provide approximately $64 million in new money financing to fund the new operating company on a go-forward basis (inclusive of the $35 million advanced under the
DIP Financing). Benefytt’s lenders will separately own the cash flow company and receive payments over time from Benefytt’s existing contract assets—with the first out revolving lenders being paid first, followed by the term lenders, followed by holders of general unsecured claims."
Adding as to the role of sponsor Madison Dearborn: "The Restructuring Support Agreement represents a significant achievement for Benefytt and is a testament to the Sponsor’s continued belief in the strength of Benefytt’s business….The Restructuring Support Agreement contemplates a fresh start for the Debtors’ operations,
provides the Company with a viable path to a swift reorganization that will allow Benefytt to continue as a going concern, and provides a path to adequately address the Debtors’ outstanding obligations to their secured lenders.
The sale of certain of Benefytt’s operating assets through a 'DIP to credit bid' acquisition is at the center of the restructuring transactions contemplated by the Restructuring Support Agreement. Under the Restructuring Support Agreement, the Sponsor and certain other co-investors have agreed to finance the DIP Facility to fund the Debtors’ operations during the chapter 11 cases. The Sponsor and the co-investors—through the entity serving as the DIP Lender under the DIP Facility—will credit bid a portion of its claims under the DIP Facility to acquire all of the operating assets of Benefytt, excluding certain contract assets and intellectual property assets, and hold such assets in the new operating company."
The charts below demonstrate the changes to the Company’s structure as contemplated by the Restructuring Support Agreement:
TheDebtors have commitments for $35.0mn of debtor-in-possession ("DIP") financing from Madison Dearborn with the facilty to be agented Wilmington Savings Fund Society, FSB.
About the Debtors
According to the Debtors: “Benefytt Technologies is a health insurance technology company that develops and operates Medicare and private health insurance marketplaces, agent technology systems and insurance policy administration platforms."
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