In a 'spectacular collapse,' Cano Health files for bankruptcy

Cano Health today announced its intentions for file for bankruptcy in an effort to stay afloat after incurring nearly $1 billion in debt.

The company said it has entered into a restructuring support agreement with its lenders, where they will hold about 86% of its revolving and long-term loan debt as well as 92% of its senior unsecured notes, according to a press release. The RSA will allow Cano to "substantially reduce its debt" and put itself in a better position for "long-term success."

Cano said it has secured a $150 million commitment in debtor-in-possession financing from some of its lenders, which it says should be enough capital to continue operations through the restructuring process. That funding is subject to court approval.

The company expects to receive approval from the courts for the restructuring and to complete the process in the second quarter of this year.

"The RSA provides for the conversion of nearly $1 billion in secured debt to a combination of new debt and full equity ownership in the reorganized company," Cano said in the release. "It also allows for solicitation of strategic partnerships and potential offers—including the sale of the company or substantially all its assets—that may result in a value-maximizing outcome to the company’s stakeholders.”

The move does not come as that much of a surprise to industry watchers, as the financial woes the company’s incurred have been obvious for some time. The company enters into risk-sharing contracts with Medicare Advantage plans as well as managed Medicaid.

Ari Gottlieb, a principal at A2 Strategy Group who keeps a close eye on healthcare startups, told Fierce Healthcare that he wonders why Humana, which he calls a key partner with Cano, doesn’t just buy the company outright. 

“Humana owns a large stake in and is a key partner with Cano,” Gottlieb said. “What’s been surprising to me so far is that Humana has not just purchased the entire business. Maybe they will now.”

Humana had not returned Fierce Healthcare’s request for comment at the time of publication.

Cano Health appointed Mark Kent as its CEO in August after the previous CEO, Marlow Hernandez, agreed to step down. In 2020, Cano Health went public by means of a special purpose acquisition company deal backed by real estate investor Barry Sternlicht. 

Kent accelerated Cano’s strategy to focus more on its Florida Medicare Advantage and ACO REACH lines of business. The restructuring also involved the company divesting operations in Texas and Nevada and exiting the California and Puerto Rico markets.

Cano said in its press release that it wants the bankruptcy court to allow it to file a series of “first day” motions to keep the business running. These include:

  • Paying wages to doctors, nurses and other employees
  • Fulfilling obligations to its affiliate physician groups
  • Making sure patients continue to get quality value-based healthcare
  • Paying existing pre-petition claims of vendors critical to maintaining the health and safety of Cano patients

Gottlieb said Cano Health had little choice by to file for bankruptcy. “They ran out of cash and incurred a lot of debt,” Gottlieb said. “And hopefully they can restructure their business.”

He said that there was a lot of infighting last summer between some of the large shareholders and the management team. “We’re talking about $1 billion, so it’s been a spectacular collapse in terms of the value that’s been destroyed from a business that was not particularly well run," Gottlieb said.

"By entering this court-supervised restructuring process, we are positioning the company to achieve those goals on an accelerated basis and focus on what we do best—improving health outcomes for patients at a lower cost," Kent said in the release. "I am confident we will emerge from this process a stronger organization with the necessary resources in place to continue delivering the quality of care our patients expect and deserve. We appreciate the support of the majority of our creditors as we pursue this goal.”