Prison health care firm Wellpath prepares to file for bankruptcy

(Bloomberg) — Wellpath Holdings Inc., one of the largest providers of health care services to U.S. jails and prisons, is preparing to file for bankruptcy after facing a high debt load and high labor costs of work, according to people with knowledge of the matter.

The company, owned by HIG Capital, failed to repay a credit facility that expired on Oct. 1 and postponed interest payments on other debt after entering into a forbearance agreement with creditors, according to Moody’s Ratings. The credit rating agency said it sees the shares as default.

A bankruptcy filing, which would keep the company afloat while it restructures its debt, could materialize in the coming days, said the people, who asked not to be identified because the discussions are private.

Representatives for Wellpath and HIG did not respond to requests for comment.

Wellpath, based in Nashville, Tenn., is part of a group of privately held companies in the prison services industry that have struggled with heavy debt in recent years. Phone provider Aventiv Technologies, which is backed by Platinum Equity, is trying to sell itself to avoid a possible bankruptcy filing, Bloomberg previously reported.

HIG Capital created Wellpath through the merger of Correct Care Solutions, a company it acquired in 2018, and Correctional Medical Group Cos., a competitor that was already in the portfolio. The buyout firm has made several investments in the prison industry: It currently owns TKC Holdings Inc., which provides commissary services, and is the former owner of Securus Technologies, the phone company now known as Aventiv.

The prison services sector has historically attracted interest from private equity firms because of its fragmented nature, which has created opportunities for consolidation and reliance on government contracts. However, the industry has faced a number of challenges in recent years, including higher borrowing costs as well as scrutiny from civil servants, prisoner advocacy groups and investors applying environmental, social and governance due diligence .

Moody’s placed Wellpath in default earlier this week, citing forbearance and cash flow pressures related to high labor costs and weak earnings. S&P Global Ratings also cut the company’s ratings, citing poor financial performance and high debt levels. Wellpath generated approximately $2.4 billion in revenue for the twelve months ended June 30, 2024, according to Moody’s.

HIG financed the CCS acquisition with $610 million in leveraged debt. The $500 million first loan due in October 2025 is quoted at about 61 cents on the dollar, while a $110 million loan due in 2026 is quoted at about 40 cents, according to data compiled by Bloomberg.

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