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Elements files for chapter 11 bankruptcy

May 25, 2018
by Julie Miller, Editor in Chief
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Elements Behavioral Health announced it is filing chapter 11 bankruptcy and will restructure the company. According to executives, all clinical programs will remain in place during the process.

“We’re continuing to operate in eight states, which in any given month, treat more than 600 new clients,” David Sack, MD, chief medical officer and interim chief executive officer, tells Behavioral Healthcare Executive.

Elements’ network includes 13 residential centers and 22 outpatient locations, all of which will be included in the asset sale transaction. Sack emphasizes that the bankruptcy filing is not an indicator that Elements will cease operations.

Rather, the restructuring is a tool to provide the company access to new capital, says Martin McGahan, managing director with Alvarez & Marsal Healthcare Industry Group and Elements’ chief restructuring officer. Last year, Elements lost $51.2 million on revenue of $129.6 million, according to the Wall Street Journal. McGahan confirms that Elements disclosed aggregate liabilities of $207.3 million.

“We’re using the bankruptcy process and filing to effectuate a transaction where new money can come in to support the company,” McGahan says. “So this is [more] about capital structure of the company than anything else.”

He says the organization is using the 363 auction process, which includes a stalking horse bidder made up of first lien lenders already in place through an asset purchase agreement. At the time of the auction, there could be higher bids, however. The process allows new money to come into the company to transfer the assets to a new entity with a more stable balance sheet, McGahan says.

“We want it to be an open process where everybody can come in and has the ability to put their highest and best offer forward,” he says.

Meanwhile, the market overall is experiencing favorable legislation and strong demand for services. It’s impossible to predict how the Elements auction will play out.

“There’s no question that there continues to be very strong demand and need for addiction treatment and residential mental health services,” Sack says. “Also there’s a changing perspective on what the best settings are and how to optimally manage and pay for those services. There is increased pressure to manage more clients on an outpatient basis and in less intensive levels of care.”

He says the interest now is in medication assisted treatment and fully integrated residential and outpatient offerings.

Leaders anticipate the Elements sale approval could occur within six weeks of the bankruptcy filing, subject to regulatory approvals. The next hearing in the process is scheduled for June 11.

 

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