AAC Holdings, Inc., a provider of inpatient and outpatient substance abuse treatment services and parent of American Addiction Centers, announced it has received the support of its Board of Directors and lenders to move forward with a strategic recapitalization plan. The plan is designed to significantly reduce the Company’s debt obligations and establish a sound financial platform for long-term growth, while maintaining AAC’s outstanding standards for patient care.
Maintaining its focus on compassionate patient care, life-saving treatment and positive outcomes, AAC’s operations will continue unchanged as the process moves forward over the next four months. All employees and clinical staff will continue to receive their normal wages and benefits to support their delivery of life-saving patient care.
“We are grateful for the support of our board, lenders, management team and business partners in this strategic recapitalization plan, which is strong validation that AAC remains well-positioned to provide high quality, critical care services to vulnerable individuals while also achieving long-term growth,” said Chief Executive Officer Andrew McWilliams. “We have been transparent about the need to reduce our debt, and this recapitalization will significantly enhance our financial position, building on the progress we’ve already made to strengthen and improve our operations over the last year. We aim to expedite this process so that we can concentrate on fulfilling our mission: caring for patients in their time of need,” McWilliams continued.
To implement the recapitalization, AAC today filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for the District of Delaware. By employing the Chapter 11 process as an instrument for recapitalization, AAC aims to join a number of leading companies like Delta Airlines, General Motors, Marvel Entertainment, Texaco and others who have emerged from recapitalization with a stronger balance sheet.
In advance of the recapitalization, AAC had taken a number of proactive steps to strengthen its operational efficiency, enhance its marketing efforts in key markets and position the company for growth. With normal operating revenue combined and an initial $62.5 million in incremental financing, operations will continue at all AAC addiction treatment centers across the United States.
According to an SEC filing dated June 22, the Nevada corporation is a party to a Credit Agreement, dated as of March 8, 2019, together with Credit Suisse AG, as administrative agent and collateral agent, pursuant to which the lenders extended to the Company term loans aggregating $30 million (collectively the “Senior Term Loan”), which became immediately due and payable at the stated maturity thereof on April 15, 2020. The Company failed to repay the Senior Term Loan on such maturity date, and, on June 15, 2020, the Agent delivered to the Company a notice of default under the Senior Credit Facility, including a demand for immediate repayment in cash of the Senior Term Loan, together with all accrued and unpaid interest thereon (including interest accruing at the default rate thereunder), together with any and all other obligations of the Company outstanding under the Senior Credit Facility. As of June 18, 2020, the total principal amount payable in cash by the Company to the lenders under the Senior Credit Facility was approximately $47 million.
Additionally, the Company is a party to that certain Credit Agreement, dated as of June 30, 2017, together with the Agent and the lenders and other parties thereto (as amended, the “Junior Credit Facility” and, together with the Senior Credit Facility, the “Credit Facilities”). The Company’s previously reported forbearance agreement with respect to certain specified events of default under the Junior Credit Facility having expired, the Agent delivered to the Company on June 15, 2020 a notice of acceleration of all amounts outstanding under the Junior Credit Facility. As of June 18, 2020, the total principal amount immediately payable in cash by the Company to the lenders under the Junior Credit Facility was approximately $317 million.
“Our number one focus is continuing to provide critical addiction treatment services, which has taken on even greater importance during the COVID-19 crisis,” McWilliams continued. “The heightened stress, anxiety, fears and social isolation in this unprecedented time has prompted more patients and their families to seek treatment, pushing demand for our services higher. Even in these challenging times, AAC has proven to be an industry leader in its pandemic response with in-house testing capabilities for both patients and staff, along with stringent safety protocols. This tenacity has given us a critical advantage in being able to continue treating patients when they need us most while minimizing the spread of the virus.”
Carl Marks Advisors has been engaged to assist the Company as a restructuring advisor, with Cantor Fitzgerald serving as investment advisors and Greenberg Traurig, LLP as legal advisor.