21st Century Oncology noteholders agree to support recapitalization

By Marisa Wong

Madison, Wis., July 29 – 21st Century Oncology Holdings, Inc. entered into two agreements with noteholders on Tuesday that provide additional liquidity as well as a framework for reducing its outstanding debt and increasing cash flow in the coming months, according to an 8-K filing with the Securities and Exchange Commission.

The company began discussions with an ad hoc group of holders of its outstanding notes when it began to experience some liquidity issues after terminating its previously planned initial public offering.

During the past month, the company has been working with a number of its noteholders and lenders to recapitalize its balance sheet so that, upon completion of a proposed transaction, it will have financial flexibility to continue to grow its business.

The company’s principal stockholder, affiliates of Vestar Capital Partners and the noteholder group entered into a recapitalization support agreement that outlines the potential terms of a deleveraging transaction expected to occur in October or November.

The noteholder group that entered into the recapitalization support agreement consists of holders or managers of 72% of the total principal amount of the debt incurred under the subordinated notes indenture dated April 20, 2010.

The agreement sets forth the terms through which the company expects to either obtain additional liquidity through an equity contribution or subordinated debt incurred in a minimum amount of $150 million on or before Oct. 1 or consummate a recapitalization.

If the company and Vestar fail to obtain a signed letter of intent for a capital contribution reasonably acceptable to the required consenting subordinated noteholders on or before Aug. 31, the company must refrain from pursuing the capital contribution and pursue the recapitalization.

Upon recapitalization, the subordinated noteholder claims would be exchanged for 95% of the new equity interests in the reorganized company, subject to dilution under a management incentive plan and new warrants, with existing equity holders receiving 5% of the new equity interests.

Under the recapitalization, existing equity holders would also receive warrants providing the right to acquire 10% of the equity in the reorganized company at an exercise price corresponding to the principal amount of the subordinated notes outstanding plus accrued interest as of the effective date of the recapitalization.

The recapitalization support agreement may be terminated upon the occurrence of breaches by the company, Vestar or the consenting noteholders, failure to meet certain milestones related to implementing the recapitalization and a determination by the company’s board of directors that continued performance under the support agreement would be inconsistent with the exercise of its fiduciary duties.

In order to provide adequate liquidity to negotiate the terms of the recapitalization, certain members of the noteholder group lent 21st Century Oncology subsidiaries $17.5 million under a new credit facility.

Specifically, the credit agreement provides for $8.5 million of tranche A term loans and $9 million of tranche B term loans.

Interest is equal to 14%.

The tranche A loans are for working capital and general corporate purposes in accordance with a budget, and the tranche B loans will fund purchases of assets used in the borrowers’ business.

21st Century Oncology is a Fort Myers, Fla.-based provider of cancer care services.

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