PE-owned primary care chain for poor Floridians goes bankrupt

Another notch in Sun Capital’s bankruptcy belt
A private equity-owned medical group serving disadvantaged populations in Florida filed for bankruptcy on October 13 after struggling under a mountain of debt loaded onto it through a private equity leveraged buyout.

Miami Beach Medical Group, doing business as Clinical Care Medical Centers (CCMC), operates 26 primary care centers mostly in poor and minority communities throughout South Florida. Most of CCMC’s 35,000 patients are considered high-risk, underserved, and dual-eligible for Medicare and Medicaid.[1]

CCMC is owned by private equity firm Sun Capital, which acquired it in December 2020 with loans from private equity firm KKR.[2] Before that, it had been owned by Gauge Capital since 2016.[3]

As of the bankruptcy filing, CCMC owed approximately $479 million to lenders,[4] 94% of which ($448 mil) is owed to KKR and Sun Capital.[5]

The company blames its financial struggles on “on industry and regulatory headwinds” combined with its “highly leveraged balance sheet” [6]  resulting from its acquisition by Sun Capital.[7]

After Sun “exhaustively” marketed the company for over a year, Humana was the only viable bidder.[8] CCMC’s restructuring officer testified:

“Given the vast breadth of the prepetition marketing and sale process, there does not appear to be any other potential purchaser that would be willing or able to purchase the Debtors’ assets for more than the Buyer, and certainly not for more than the $448 million in secured debt owed to KKR and Sun Capital.”[9]

Insurance giant Humana is buying substantially all of CCMC’s assets for just $45 million.[10]

Sun Capital Track Record
Over the last 15 years, Sun Capital has had at least 35 portfolio companies file for bankruptcy under its ownership, according to data provider Pitchbook.[11] Some of those companies had healthy balance sheets when Sun Capital acquired them, and ran into financial distress after the private equity’s leveraged buyouts and aggressive financial tactics.

For example, Sun Capital owned discount retailer Shopko from 2005 to 2019 when it filed for bankruptcy and ultimately liquidated. At the time of its bankruptcy, Shopko had 14,000 employees at 360 stores in 26 states.[12]

Thousands of Shopko workers lost their jobs, but Sun’s egregious financial engineering enabled it to exit its investment with substantial profit. Sun acquired Shopko with little of its own capital and significant debt, sold off its real estate in a sale-leaseback transaction, added more debt to finance shareholder dividends (totaling $179.5 million), and charged Shopko annual consulting fees and transaction fees, including fees tied to the dividends that Sun collected.[13]

While Sun Capital was siphoning cash from Shopko, Shopko was allegedly skipping out on $13.5 million worth in state taxes in Wisconsin, according to the state’s Department of Justice.[14]

In another example, Sun Capital took ice cream and burger chain Friendly’s into bankruptcy. Similar to CCMC, Sun was one of Friendly’s biggest lenders, which put it first in line to be repaid in the bankruptcy process. While Sun was able to recoup some of its investment, the restructuring led to 100 stores closing and 2,000 workers losing their jobs.[15]

Sun Capital also owned Marsh Supermarkets, which filed for bankruptcy in 2017 following a sale-leaseback circa 2006 deal that generated payouts for the firm’s executives but forced Marsh to start paying rent on stores it previously owned.[16]

Other Sun bankruptcies include clothing retailer Limited Stores, which filed for bankruptcy in 2017 and closed all 250 of its stores;[17]Garden Fresh Restaurant Corp, which operated Soulplantation and Sweet Tomatoes;[18] and discount department store chain Gordman Stores.[19]

Looking Ahead
Sun Capital’s bankruptcy of CCMC marks a new frontier for the firm – most of its bankruptcies so far have been in the retail and food service sector. And while those bankruptcies resulted in mass layoffs and closures, Sun’s forays into the healthcare sector pose a unique threat.

Regulators and lawmakers must not allow private equity firms like Sun Capital, whose track records should speak for themselves, to acquire companies like CCMC. CCMC provides critical healthcare serves to poor and underserved Floridians, and Sun’s debt-funded gamble puts all of those patients at risk.

Resources

[1] In re: MBMG HOLDING, LLC, et al., “Declaration Of Nicholas K. Campbell In Support Of Chapter 11 Petitions And First Day Pleadings.” United States Bankruptcy Court Southern District Of Florida Miami Division. Case 24-20576-CLC Doc 31, filed 10/13/24. https://document.epiq11.com/document/getdocumentbycode?docId=4390755&projectCode=MBX&source=DM. Pg. 2.

[2]Declaration Of Nicholas K. Campbell , filed 10/13/24. Pg. 10.

[3]Declaration Of Nicholas K. Campbell , filed 10/13/24. Pg. 10.

[4]Declaration Of Nicholas K. Campbell , filed 10/13/24. Pg. 13.

[5]Declaration Of Nicholas K. Campbell , filed 10/13/24. Pg. 29.

[6]Declaration Of Nicholas K. Campbell , filed 10/13/24. Pg. 22.

[7]Declaration Of Nicholas K. Campbell , filed 10/13/24. Pg. 24.

[8]Declaration Of Nicholas K. Campbell , filed 10/13/24. Pg. 22.

[9]Declaration Of Nicholas K. Campbell , filed 10/13/24. Pg. 29.

[10]Declaration Of Nicholas K. Campbell , filed 10/13/24. Pg. 28-29.

[11] Pitchbook search for Sun Capital exits conducted on October 24, 2024. https://my.pitchbook.com/profile/10088-29/investor/exits/distress

[12] Dan Primack, “How workers suffered from Shopko’s bankruptcy while Sun Capital made money,” Axios, June 11, 2019. https://www.axios.com/2019/06/11/shopko-bankruptcy-sun-capital

[13] Dan Primack, “How workers suffered from Shopko’s bankruptcy while Sun Capital made money,” Axios, June 11, 2019. https://www.axios.com/2019/06/11/shopko-bankruptcy-sun-capital ; Jeff Bollier, “Shopko used borrowed money to pay dividends; owes Wisconsin $13 million in taxes, fees,” Green Bay Press-Gazette, March 1, 2019.  https://www.greenbaypressgazette.com/story/money/2019/03/01/shopko-dividends-under-investigation-also-owes-wisconsin-13-5-million/2906336002/

[14] Jeff Bollier, “Shopko used borrowed money to pay dividends; owes Wisconsin $13 million in taxes, fees,” Green Bay Press-Gazette, March 1, 2019.  https://www.greenbaypressgazette.com/story/money/2019/03/01/shopko-dividends-under-investigation-also-owes-wisconsin-13-5-million/2906336002/

[15] Mike Spector, “Two Hats a Fit for Friendly’s Owner,” Wall Street Journal, July 26, 2012. https://www.wsj.com/articles/SB10000872396390443477104577551000555121714

[16] Rosemary Batt and Eileen Appelbaum, “Private Equity Pillage: Grocery Stores and Workers At Risk,” American Prospect, October 16, 2018. https://prospect.org/power/private-equity-pillage-grocery-stores-workers-risk/; Americans for Financial Reform Education Fund, “Sun Capital: A Case Study in Private Equity Looting.” https://ourfinancialsecurity.org/wp-content/uploads/2020/10/Sun-Capital-Case-Study.pdf

[17] Reuters, “Women’s apparel retailer Limited Stores files for bankruptcy,” Fashion Network, January 17, 2017. https://us.fashionnetwork.com/news/Women-s-apparel-retailer-limited-stores-files-for-bankruptcy,781814.html

[18] “Garden Fresh Restaurant Corp. Files for Bankruptcy Protection,” QSR Magazine, October 3, 2016. https://www.qsrmagazine.com/news/garden-fresh-restaurant-corp-files-bankruptcy-protection/

[19] Daphne Howland, “Gordmans files for Chapter 11 bankruptcy protection,” Retail Dive, March 13, 2017. https://www.retaildive.com/news/gordmans-files-for-chapter-11-bankruptcy-protection/437954/