Carestream Health: Files For Chapter 11

8/24/2022

There are fewer Chapter 11 bankruptcies these days, but there are some and even a few that impact the BDC sector. A case in point is Carestream Health, a medical imaging company owned by Onex. On August 23, 2022 we heard that the company had filed for a pre-packaged bankruptcy with the goal of reducing its $1bn debt mountain, but with the goal of continuing to operate normally. We already know that lenders and owners have a tentative agreement to eliminate about half the debt outstanding.

Thanks to Advantage Data’s records, we’ve identified two BDCs with exposure to either Carestream Health or Dental. The good news is that the amount at risk is modest at $15mn at cost. The only two BDCs with exposure are Cion Investment (CION) with $12.7mn in second lien debt and equity and  Portman Ridge Financial (PTMN) with $1.8mn in second lien debt at cost and with a no cost equity stake.  

We are rating Carestream CCR 5 because of the bankruptcy.   Any realized losses that might occur are likely to occur in the third or fourth quarter 2022, given that a restructuring seems close.

As to the reasons for Carestream’s problems – besides all that debt – Bloomberg summed up what the company said to the court:

The company blamed the increased use of digital images by doctors and dentists instead of film-based X-rays, as well as a push by governments to drive down the cost of health care. China, for example, created an agency that buys medical equipment in high volume in order to save money, Carestream said in court papers.Steven Church -Bloomberg – August 23, 2022

These all seem like “idiosyncratic” causes for Carestream’s troubles and nothing related to the broader economic environment and concerns about supply chain problems; payroll cost increases and inability to pass on inflationary increases. We’re still not seeing many corporate victims of the very difficult environment that has been in play all year and which many expect to result in a recession.

Note: This is a corrected version of this article. We had previously included Carestream Dental, which was sold off in 2017 and is not involved in the bankruptcy. Also, we have discovered that CION - through one of its joint ventures - holds a material position in the debt and equity.