Sound Physicians Nearing Potential Pro Rata Debt Exchange

Sound Physicians is closing in on a pro rata liability management transaction to receive new money and execute a debt exchange to address the company’s upcoming debt maturities, according to sources.

Timing of such a transaction is fluid, but a deal could be launched and cleansed in the next month, the sources said. A cooperation agreement that encompasses a vast majority of the lenders was recently extended, they added.

Plans may change, and there is no guarantee that the privately held physician services provider will end up agreeing on a deal with lenders, they cautioned.

The company is advised by PJT Partners, and Paul Weiss and Evercore are representing lenders, as reported.

The average price of Sound Inpatient Physicians’ $575 million L+300 bps first lien term loan due June 2025 is 56.96 as of today, up from 33.28 three months ago, according to Solve Advisors. The average price of Sound Inpatient Physicians’ $215 million L+675 bps second lien term loan due June 2026 is 6.58 as of today, slightly slower than 7.75 in the same comparison.

Sound Inpatient Physicians was also downgraded by Moody’s Investors Service on Feb. 26, which cited its “weakened liquidity and an unsustainable capital structure.”

“The company’s $65 million revolving credit facility is fully drawn and has become current, with Moody’s estimating financial leverage to be above 20 times,” Moody’s said. “Despite Sound’s leading position as a value-based care program provider, its path to deleveraging remains uncertain without debt restructuring,”

“The company also faces the risk of pursuing a distressed exchange transaction,” the ratings agency added. “Sound’s weakened liquidity is further emphasized by its fully drawn revolver, minimal free cash flow, and mandatory amortization commitment. Despite a gradual improvement in earnings, the risk of default is very high and recovery in the event of default is expected to be low.”

Sound Physicians did not respond to a request for comment.