Cano Health, the leading senior-focused primary care provider, which went public through a $4.4 billion SPAC merger in 2021, filed for Chapter 11 bankruptcy following a turbulent 2023. The news did not come as a surprise to industry observers, who attributed the bankruptcy to a combination of mismanagement, inappropriate growth strategy, and poor market selection.
The filing documents submitted to the U.S. Bankruptcy Court for the District of Delaware revealed $1.2 billion in assets and $1.4 billion in debts. The filing acquired support from lenders who hold approximately 86% of the company’s secured revolving and term loan debt and 92% of its senior unsecured notes.
The company declared that this move would allow for a significant decrease in debts and aid in positioning Cano Health for long-term success. Furthermore, the company secured a $150 million debtor-in-possession finance commitment from some existing secured lenders, aimed to maintain company operations during the restructuring process. The company anticipates court approval for the restructuring in Q2, 2024.
The bankruptcy filing occurred amid ongoing governance issues, with three board members publically resigning in protest late March 2023. Among the members who stepped down was Barry Sternlicht, CEO of Starwood Capital Group, who expressed strong concerns over the company’s “poor operating decisions and performance” in a public statement. He criticized the management’s decision to exhaust nearly all of the $1.49 billion gross proceeds acquired in the public offering and the resulting inability to demonstrate any significant improvement in the company’s core profitability.
The continuous mismanagement and unfounded growth prospects led to a 90% decline in Cano’s stock value and a crippling debt burden. Sternlicht had previously voiced his concerns to the board and the then CEO, Marlow Hernandez, to no avail. Hernandez was subsequently compelled to step down as CEO in June.
Howard Forman, Yale professor of radiology, public health, and economics, wasn’t surprised by the bankruptcy. He noted that Cano’s aggressive growth strategy and poor timing in targeting the Medicare Advantage market were key elements in the company’s downfall. Furthermore, he highlighted mismanagement issues and an ongoing dilution of shareholders due to constant fundraising efforts.
Anu Sharma, CEO of maternity-focused startup Millie Clinic, echoed Forman’s views, indicating that Cano’s rapid expansion into new markets and unrelated service lines expedited its financial reckoning. She stated Cano serves as a reminder that care model sustainability and disciplined market selection are crucial winning elements in the healthcare sector.
MedCityNews provides a comprehensive timeline of Cano Health’s journey leading up to its current situation.