Summit Behavioral Healthcare Asks Lenders to Sign Aggressive NDAs to Review Proposed Deal

Summit Behavioral Healthcare and its advisors are reaching out to a broader base of lenders, inviting them to sign nondisclosure agreements so they can review the terms of a proposed transaction, according to sources.

The NDAs are said to have restrictions on signees, including on organizing and signing cooperation agreements, as well as stringent requirements, including a long effective period during which signees cannot trade, the sources said.

Signing a weaponized NDA would give the signee access to more information and an opportunity to be included in a liability management exercise. The ask on behalf of Summit BHC is reminiscent of Better Health’s liability management exercise process, where non-ad-hoc lenders were asked to sign NDAs under the impression that they would receive the same economics as the ad hoc lender group. Instead, those lenders to Better Health were surprised to find out that they would actually receive worse treatment than the ad hoc group after signing the NDAs and agreeing to a standstill agreement limiting their ability to organize or litigate for 45 days.

The request from the company side is also a signal that Summit BHC and a lender steering committee have a deal in mind and are ready to seek support from additional lenders, the sources said. Octus reported that the company was seeking to boost liquidity and had been exchanging proposals with an ad hoc group of lenders on the matter.

The Patient Square Capital-backed operator of mental health and addiction treatment services facilities faces sustained margin weakness from Department of Veterans Affairs referral losses and committed capital expenditures, which have contributed to higher leverage and a cash flow deficit, according to an S&P Global Ratings report in May.

The ratings agency notes that Summit derived about 40% of its FY 2024 revenue from Medicaid, which could present challenges over a longer period stemming from regulatory changes arising from the budget reconciliation bill, including work requirements and heightened eligibility oversight.

Further, the behavioral health industry in general has been subject to labor pressure. Universal Health said today that it has been difficult to hire nurses, therapists and mental health technicians. In December 2024, a report commissioned by the Maryland Health Care Commission concluded that Maryland would need to increase behavioral health care workers by 50% to meet demand.

The company guided in April to revenue growth and EBITDA decline in 2025. First-quarter adjusted EBITDA fell 38.7% year over year on a 4.5% revenue decline to $141.5 million. The company is working with Kirkland & Ellis and PJT Partners, and an ad hoc group of lenders is advised by Milbank and Guggenheim Securities.

The company’s roughly $796 million term loan due 2028, which was repriced in April 2024, has slid to the 70s, down from the 90s in February, according to Solve. A list of CLO lenders can be found HERE.

An estimate of the company’s capital structure is below:
 

Summit BHC, Kirkland & Ellis, Milbank and Guggenheim Securities did not respond to requests for comment. PJT Partners declined to comment.