Charlotte Buyer Borrowed to Fund CDR's 60% Stake

Strange Tony,

Humana's complicated sale of 60% of Kindred Hospice/Community Care to financial rapscallion Clayton, Dubilier and Rice has been consummated via a company named Charlotte Buyer Inc., which borrowed over $1.6 billion to fund the deal.

The Q4 2021 Annual Health Statement for Arcadian Health Plan (part of Humana) shows Charlotte Buyer to be an affiliate of Humana.  The filing showed numerous organizational charts for Humana's hospice and home health assets under the Gentiva umbrella.  .  

Charlotte Buyer is the intermediary company for Curo Health Services' hospice assets.  It is not the intermediary for other Gentiva/Kindred hospices that rose up under Integracare, Healthfield, Harden Healthcare, Odyssey, or VistaCare/Family Hospice umbrellas.  

Humana, TPG and WCAS borrowed under the Gentiva Health Services name to fund the deal in 2018.  Moody's most recent credit rating for Gentiva New said: 

Any divestiture of the hospice/ community care assets would trigger the requirement within the credit agreement to repay the debt and as a consequence could result in a different rating outcome. 

Oddly Humana went a level down to an entity that only covers a portion of the hospice assets.  I don't recall Curo having Community Care services.  They came from the Kindred at Home side.

Moody's rating of Charlotte Buyer noted:

The borrower under the credit agreement is Charlotte Buyer, Inc. There is a downstream guarantee from an intermediate holding company, but not from KAH Hospice Company, Inc., i.e. the future filer of the financial statements.

Borrowers need an upstream guarantee from Gentiva Health Services for multiple reasons. 

The credit agreement  permits the transfer of assets to unrestricted subsidiaries, up to the carve-out capacities, subject to "blocker" provisions which prohibit the transfer of intellectual property, that is material to the operations of the company, taken as a whole, by way of sale, conveyance, transfer or other disposition  to an unrestricted subsidiary.

Non-wholly-owned  subsidiaries are not required to provide guarantees; dividends or transfers resulting in partial ownership of subsidiary guarantors could jeopardize guarantees subject to protective provisions which only permit guarantee releases if such transfer is not done in connection with a non-bona fide transaction (as determined by the parent borrower conclusively and in good faith) and for the primary purpose to cause such subsidiary to become an excluded subsidiary and be released from the guarantee.

There are no express protective provisions prohibiting an up-tiering transaction.

I would not want to hold Charlotte Buyer debt as it represents a fraction of Gentiva Health Services hospice and community care assets.  

What kind of sleight of hand will executives and our new financial rapscallion owners use to take advantage of hospice staff? 

Anonymous

CDR Now Majority Owner of Kindred Hospice

Strange Tony,

Humana did it.  They sold our hospice down the river to yet another financial rapscallion.

Humana Inc. today announced that it has successfully completed its previously-announced transaction with private investment firm Clayton, Dubilier & Rice (“CD&R”) to divest a majority interest in the Hospice and Personal Care divisions of Humana’s Kindred at Home subsidiary (“KAH Hospice”). These divisions include patient-centered services for Hospice, Palliative, Community and Personal Care. Upon closing, the Hospice and Personal Care divisions have been restructured into a new standalone company.

...the new standalone company, soon to become Gentiva.

It's official.  The Gentiva name is coming back, just as I pondered last September.

It looks like Gentiva might be returning, especially as the Director of Corporate Communications for the company has a gentiva.com e-mail address. 

 A regulatory filing with the state of Oregon stated:

CD&R Falcon Holdings, L.P. (“Falcon Holdings”), the sole limited partner of Falcon Hospice, would acquire a 60% ownership interest in KAH Hospice Company, Inc. (“KAH Hospice”). KAH Hospice is currently owned by Gentiva a wholly owned subsidiary of Humana.

The Oregon analysis highlighted the negative impact Bain Capital's ownership had on Aveanna Healthcare,  

"caregivers were made to focus on profit maximization and overextend themselves...patient care ultimately suffered."  Bloomberg article 10-22-19

Former Gentiva CEO Tony Strange is CEO of Aveanna.  

Oddly, Humana's most recent SEC filing showing Q2 results has not one mention of their wholly owned subsidiary Gentiva.  

CDR borrowed $1.6 billion via a term loan from Goldman Sachs to help finance the deal.  It originally sought nearly $2.5 billion in loans but dropped a $400 million term loan A.

I was unable to find a debt rating for any of the possible entities associated with the deal, Falcon Holdings, CD&R Falcon Holdings, Kindred Hospice, KAH Hospice, or Gentiva (the name used for prior debt ratings).

There is a B3 debt rating for Charlotte Buyer, Inc. that covers Kindred at Home Hospice/Kindred Hospice.  It states:

The borrower under the credit agreement is Charlotte Buyer, Inc. There is a downstream guarantee from an intermediate holding company, but not from KAH Hospice Company, Inc., i.e. the future filer of the financial statements.

KAH Hospice is majority private equity owned, which could lead to an increasingly aggressive financial policy over time.  

Alternative sources of liquidity are limited as substantially all assets are pledged. 

 ...financial policies will be aggressive under majority private equity ownership including debt-funded acquisitions to drive growth.

Next level financial rapscallion ownership is upon us.  I expect it to be extremely painful.

Anonymous

Financial Rapscallions Harm More than Our Hospice

Strange Tony,

Financial rapscallions continue to harm hospice care.  Kaiser Health News reported:

According to a 2021 analysis, the number of hospice agencies owned by private equity firms soared from 106 of a total of 3,162 hospices in 2011 to 409 of the 5,615 hospices operating in 2019. Over that time, 72% of hospices acquired by private equity were nonprofits. And those trends have only accelerated into 2022.

My coworkers know the bane of private equity from three years of abuse under the hands of TPG Capital, and Welsh, Carson, Anderson and Stowe.  Humana will sell us down the river to yet another profit maximizer, Clayton, Dubilier and Rice.   

Kindred Hospice revenues were $399 million for Q1 and $382 million in Q2 or $781 million for the first six months of the year.  Pretax profits were $62 million for Q1 and $64 million in Q2 or $126 million for the first half of 2022.  

Humana's Q2 SEC filing is sparse on Kindred Hospice's financial operations and capital structure.  It provides even less for the home health operation it is keeping.  I don't understand how the SEC lets Humana get away with providing so little information on a company it acquired in full in August 2021 and still owns/operates.

Financial rapscallions want as little information in the public sphere as possible.  That way people won't see their greed and cruelty on paper.  Rest assured, their distorted priorities are acutely felt by hospice staff and patients.  The cuts just keep on coming.

Anonymous