Medical Solutions Minority Lenders Sign Cooperation Agreement

An ad hoc group of minority lenders holding about $100 million of Medical Solutions’ $1 billion term loan due 2028 has signed a one-year cooperation agreement prepared by Glenn Agre as legal advisor ahead of a potential liability management transaction, according to sources.

The united front by the minority lenders came after a separate, creative cooperation agreement prepared by Gibson Dunn for the majority lender group that baked in potential tiered treatment in an LME. The Glenn Agre co-op, which has gone effective and treats all lenders equally, will prevent lenders that refused to sign the 90%-lender co-op from being picked off one by one in the upcoming deal process, the sources said. The minority lender pact also strengthens its signees’ negotiation power, they added.

Octus previously reported that holders of more than 90% of Medical Solutions’ first lien loans signed on to a controversial cooperation agreement prepared by Gibson Dunn by a Sept. 19 deadline. The unique united front baked in the possibility of tiered treatment for lenders.

The latest development marks the further maturing of the ad hoc group formation and LME processes, as many actions occur earlier and faster. Normally minority lenders would group up without a co-op before they are asked to sign nondisclosure agreements, which can be weaponized. But this risks the minority group collapsing due to outreach by the company’s advisors to individual holders for side deals.

Similar to first class, business class, premium economy and economy flight tickets, the majority co-op in Medical Solutions sets up four potential tiers of treatment for lenders in a potential forthcoming liability management exercise, as reported. The agreement also gives certain SteerCo lenders a premium in relation to their second lien holdings.

Creditors with small-to-midsize exposures to LME candidates were taking a leap of faith. Like the contestants on the reality TV series Love Is Blind, lenders were asked to believe loyalty is blind, as they were invited to sign these pacts without seeing the terms of the LME first.

The technology of baking tiered treatment into a co-op may be welcomed by both large lenders, who seek better recovery and performance than their peers, and the company and sponsor sides. Issuers and their owners often threaten existing lenders with new money from third parties, otherwise known as the “deal-away.”

They also seek to capture discounts and can be frustrated by co-ops that encompass holders of substantially all of the debt that are better able to resist taking a haircut. The new co-op language may also help participating parties reduce litigation risk, decrease the need for another ad hoc group of lenders that would otherwise negotiate for better economics and normalize tiered treatment in LMEs.

Earlier this summer, the company was downgraded by S&P Global Ratings, which noted the “prolonged softness in travel nurse demand and limited visibility due to current economic uncertainty.”

“We expect Medical Solutions’ profitability will remain weak, resulting in very high adjusted leverage, and we view the capital structure as potentially unsustainable longer term,” the ratings agency said. The credit rater’s negative outlook “also reflects the risk that the distressed trading price of Medical Solutions’ debt increases the likelihood that it could pursue a distressed exchange.”

Although the medical staffing industry has undergone an improvement in revenue, margins have not rebounded to their post-Covid-19 performance, as shown in the recent performance of comps Ingenovis and publicly listed AMN Healthcare, according to Octus analysis.

An estimate of the company’s capital structure as of Aug. 22 is shown below:
 

CLOs with the largest exposure are as follows:
 

The average price of Medical Solutions’ $1.05 billion SOFR+350 bps first lien term loan due 2028 is 31.83 as of today, down from 54.18 three months ago, according to Solve.

Medical Solutions, sponsor Centerbridge Partners and Glenn Agre did not respond to a request for comment.