Citing Post-Acute Distress, Medical Equipment Manufacturer Enters Bankruptcy Protection

The skilled nursing world has seen its share of bankruptcies over the last few years, and this past week a vendor with a heavy concentration in the space blamed the industry’s woes for its own filing.

Joerns, a private-equity owned company that makes medical equipment, began Chapter 11 bankruptcy proceedings late last month, citing post-acute distress and declining lengths of stay as the cause of its liquidity problems.

The Wall Street Journal first reported the news last week.

Joerns makes negative pressure wound therapy solutions, patient lifts and mobilization equipment, health care bed systems, therapy support services and respiratory and durable medical equipment. It has relationships with approximately 5,000 skilled nursing facilities, long-term care facilities, hospice agencies, and home care agencies, as well as the U.S. Department of Veterans Affairs, according to its corporate overview.

The Charlotte, N.C.-based company cited declines in occupancy rates in post-acute facilities stemming from structural and reimbursement changes — as well as lower lengths of stay — as a reason it ran into problems.

“The decline in occupancy rates has led to reduced demand for the company’s products and services, particularly in rental services, which is a major component of the company’s business,” Joerns said in the disclosure statement, filed June 25. “Further, the general post-acute sector disruption has placed many of the Company’s customers under significant financial pressure, resulting in several bankruptcy filings, increased mergers and acquisition activity to divest under-performing facilities, and proactive cost reduction efforts, as well as fewer equipment purchases.”

The skilled nursing world has been rocked over the past several years by multiple bankruptcies, many of which involved large companies.

Senior Care Centers, which managed more than 100 SNFs and independent/assisted living communities in Texas and Louisiana declared bankruptcy late last year, while Welcov Healthcare, which had 22 SNFs in Minnesota, Wyoming, Iowa, and South Dakota, underwent an involuntary Chapter 7 bankruptcy filed by three creditors.

Orianna Health Systems, which had 43 SNFs in seven states, entered bankruptcy in March of last year, while in 2017, 33 SNFs operated by Preferred Care Partners Management Group sought bankruptcy protection. And before operator HCR ManorCare was purchased by ProMedica in a major deal with Welltower (NYSE: WELL), it went through the bankruptcy process with its then-landlord Quality Care Properties.

Even companies that didn’t enter bankruptcy haven’t been immune from the pressures of the space; Signature HealthCARE had to work out lease restructurings with its two major landlords, Omega Healthcare Investors (NYSE: OHI) and Sabra Health Care REIT (Nasdaq: SBRA). Receiverships have hit operators across several states.

Though Joerns exited non-core businesses and undertook cost reduction efforts, it wasn’t able to offset the effect of the decline in patients served, the company said. Those declines were driven by both a decrease in the number of facilities that used its equipment and the reduced number of residents per facility — as well as the patients staying for shorter periods, according to the disclosure statement.

Because of those issues and related problems, several customers experienced liquidity issues, which hindered Joerns’s collection efforts and forced it to record a higher level of bad debt expenses, the company said. The result was that Joerns had “significant liquidity constraints since 2016,” which in turn led to supply chain disruptions that hurt its businesses further.

“Such supply disruptions inevitably led to stock shortages that opened the door for the company’s competitors to opportunistically exploit the company’s distress,” Joerns said in the filing.

The company had a net loss of $72.6 million in fiscal 2018, according to the disclosure statement, with $426.5 million in total liabilities.

The reorganization plan would reduce its debt to $80 million, with Joerns senior leaders to get a 95% stake in the reorganized business and recovering 24% to 43% of what they’re owed, the WSJ reported, citing court filings. Junior bondholders would receive the remaining equity and recover 2 cents to 4 cents on the dollar, it added.

Most of Joerns was purchased in 2010 by the private equity firm Quad-C Management Inc.; in 2014, Joerns merged with a portfolio company of private equity firm Aurora Capital, the WSJ noted.