Medical Solutions’ Now Effective, Potentially Tiered Treatment-Embedded Co-Op Roils Non-SteerCo Lender Base

A cooperation agreement in the market with potentially tiered treatment baked in has drawn protests, doubts and questions from investors about the practice of forming united fronts.

The new co-op banding a steering committee of certain large lenders in Medical Solutions took effect on Sept. 12 as an old co-op uniting over 90% of first lien lenders expired on the same date, according to sources. The steerco comprises about 56% of the first lien loan and some second lien holdings, one of the sources said. The new co-op is open to all lenders and some non-steerco lenders have signed onto the co-op, the source said.

The new loyalty pact for lenders to the Centerbridge Partners-backed clinician staffing company includes some provisions that allows for preferential treatment for steerco lenders’ first lien and second lien holdings in a potential liability management exercise, according to sources.

However, the co-op in Medical Solutions is far from the first of its kind in the market with this concept, the sources said. The transition from the old co-op to the new one may have contributed to market awareness of the topic, they added.

Nevertheless, embedding explicit language about the option and possibility of non-pro-rata treatment for co-op lenders has unsettled some lenders, even though additional economics for largest lenders are not new, they added. Without reviewing the terms of the actual LME deal, which could include a wide or narrow gap between the economics for steerco and non-steerco lenders, investors believe they do not have enough information to make a decision about their holdings and the co-op, according to sources.

Additionally, if lenders do not sign onto the co-op by Friday, Sept. 19, but decide to join later, they would be “subsequent party members” and receive third-best economics, better than those for the lenders not part of the united front, according to sources. If they do join by the deadline this week, they will become an “initial party” of the consortium to receive second-best treatment, a tier lower than the terms for steerco members as per the co-op, the sources said.

Glenn Agre hosted a call yesterday, Sept. 15, for non-steerco lenders to discuss potential strategies, according to sources.

Co-ops have been used as a defensive measure against coercive exchange offers, the deal-away and third-party risks. Some investors are worried about the technology being purposed widely in the market to institutionalize non-pro-rata treatment in tiered LME deals.

Medical Solutions’ first lien term loan is indicated in a 35/38 context this week, according to Solve, whereas the second lien is indicated in the 20s. The steerco and non-steerco first lien paper has been quoted with roughly 20-point delta in the secondary market, Octus reported previously. CLO lenders are HERE.

An estimated capital structure of Medical Solutions as of Dec. 31, 2024, is as follows:
 

Medical Solutions, sponsor Centerbridge Partners and Gibson Dunn did not respond to requests for comments.