This should give the company more liquidity runway, crucial as cash burn at the group accelerates, according to the latest financial performance figures seen by 9fin.

GenesisCare and KKR did not respond for comment.

Net debt declined by $150m, according to a September 2022 compliance certificate. The lender said that this was presumably due to the proceeds from the group’s sale of its Australian cardiology business CardioCo and the loan from its shareholder China Resources Group (CRG) which both came in August ($108m in aggregate). The lender said this would imply a cash burn of $42m in September, which is higher than expected.

Despite what the lender described as material uncertainty around Genesis Care’s ability to continue operations in their June report, management have subsequently stated they believe the company can continue to operate based on cash flow forecasts and bridge loan extensions, they said.

According to S&P, the sale of CardioCo to Adamantem Capital was for around A$120m ($77.3m). The rating agency said that the proceeds to the group were “likely to be reduced” by a AUD50m loan repayment to KKR, a A$29m repayment to China Resources, and AUD18m of prepayments for equipment financing.

The group received a A$43m ($27.5m) loan from its shareholder China Resources in August to support near-term liquidity. This was after the group’s other shareholder KKR injected A$75m ($47.9m) in June.

GenesisCare’s earnings have continued to disappoint, with SFA LTM EBITDA falling to $35.6m in September, per two lenders in the business. According to the first lender, it is unclear whether earnings from the Cardiology business were included in the quarterly numbers.

Liquidity at the end of Q2, meanwhile, was $54m. Cash inflow for that quarter was up $0.1m QoQ, however given that $54m came in from sponsor KKR during the quarter, this figure implies higher cash burn in the underlying business than in previous quarters, the lender said.

Leverage was an eye-watering 26.25x in June, the lenders said, up from 18.1x as of 31 March 2022, according to an S&P report. Improvements in leverage are dependent on a rebound in earnings, particularly in the US, given the negative free operating cash flow (FOCF), the ratings agency said.

Call me

Sources close to the company and creditors said the company has yet to initiate discussions with the lenders over its liquidity issues. A call was set up with lenders on 19 October 2022 but was cancelled as it was sent out in error.

There are no upcoming triggers for the debt due to the cov-lite structure, the same sources told 9fin. The legal team at 9fin have done loans analysis here, available to lenders who can prove access to the SFA.

The loan documents have substantial basket capacity and flexible language which could allow the sponsor flexibility to leak value from lenders, as reported.

GenesisCare is working with Lazard, however the close source to the company told 9fin that they have yet to be formally appointed, as reported.

Houlihan Lokey and Akin Gump are working with lenders to the group’s $1.5bn of TLB facilities. These include a €400m ($398m) 3.5% 2025 TLB, A$227m ($145m) 2025 TLB, A$150m ($95.9m) 5.25% 2027 TLB, $350m 5% 2027 TLB, and €500m ($498m) 4.75% 2027 TLB.

An ad hoc group of lenders has formed consisting of five funds, which include Barings, Bain Credit, and GSO/Blackstone, the sources close said. One of sources close to the company added that there are cross guarantees in the loans.

The funds mentioned did not respond for comment.

The group also has an A$100m RCF which brings its total debt up to $1.6bn.

The group of lenders had organised and are working with the advisors to be “prepared in case something happens” as they are concerned over the group’s liquidity issues, as reported.

The majority of the funds invested in Genesis Care have cross holdings in both the 2025 and 2027 EUR denominated TLBs. These include Carlyle, Investcorp, Barings, GSO/ Blackstone, Blackrock Financial Management, Cairn, Oak Hill Advisors, Bain Capital, Accunia, BNP Paribas, Redding Ridge Asset Management, AXA Investment Managers, GLG Partners, Partners Group, Apollo, Sculptor, Fair Oaks, CIFC, Hayfin Emerald Management, Spire Partners, Oaktree and Intermediate Capital Group, according to 9fin’s data.

There is a stringent white list, which makes it difficult for distressed funds to buy into the name in secondary.

Over the last two weeks the group’s euro-denominated TLBs have been trading in the mid 30s. On 12 October 2022, a €2m piece of the group’s €500m 4.75% 2027 loan traded at 35 points via JPMorgan. The desk quoted 30-40 bid/ask following the trade. On 20 October 2022, a €2m piece of the group’s €400m E+350 bps 2025 TLB traded at 36.51.

Distressed exchange increasingly likely, says S&P

On 20 October 2022, S&P downgraded GenesisCare to CCC from CCC+ due its “less than adequate liquidity and our expectation that the company may consider a distressed debt exchange in the next 12 months.”

S&P said there is “an increased likelihood of a below-par exchange” given the group’s TLB trading lower in the secondary market in recent months.

The group is pursuing the sale and leaseback of treatment centres to generate additional liquidity and is also seeking additional capital from existing or new shareholders.

Other measures include an accelerated cost-cutting programme including cutting non-discretionary capex to preserve cash flow. However the company is still proceeding with capex for site refurbishments and replacement of clinical assets.

“This capex, along with significant debt-servicing requirements, will continue to constrain cash flow and limit the company's ability to deleverage, in our view,” S&P said. “As a result, we question the sustainability of the group's capital structure.”

On the plus side S&P expects some improvement in patient volumes and revenue collections for GenesisCare's US business. Additionally, GenesisCare's results of fee-collection processes are improving in the U.S.

In June 2022, the company delivered its strongest month of cash collections since the acquisition of US cancer care provider 21st Century, which resulted in an 8% increase in average fees against the low point in average fees experienced in the first quarter of 2022. The company is aiming to complete these enhancements to its fee collection processes by June 2023, and generate EBITDA growth of $15m to $20m, according to the report.