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3.17.2014

$750 Million in Debt, M*Modal Preparing to File for Bankruptcy

A medical services company owned by a J.P. Morgan Chase&Co. private-equity arm is preparing to file for bankruptcy protection in the next two weeks as it struggles under a hefty debt load and declining sales, people familiar with the matter said.

M*Modal is in discussions with its creditors on a prearranged restructuring plan that would streamline its trip through bankruptcy court, these people said. The bankruptcy negotiations come about 18 months after One Equity Partners took the company private through a leveraged buyout.

Some creditors, including Brigade Capital Management LLC, Blackstone Group LP's GSO Capital Partners and Fidelity Investments, are negotiating with the company to swap their debt for equity in the reorganized company, they added.


The discussions are ongoing, and the goal is to file by about mid-March, when a grace period for a February missed bond payment expires, two of the people said.
At the time of the missed payment, the company said it was engaged in discussions with some lenders and bondholders to reduce its debt. "We believe these discussions have been constructive," M*Modal Spokesman Joe McNamara said in a Feb. 19 statement.
M*Modal transcribes doctors' voice recordings and develops voice-recognition software for the medical industry. Some creditors hope the company's restructuring will put it in a position to grow the voice-recognition software part of the business, one of these people said.
One Equity tapped its latest buyout fund for the $447 million it put toward the $1.1 billion purchase, according to securities filings. As M*Modal's financial situation deteriorated last year, One Equity gave the Franklin, Tenn., company another $20 million, according to credit analysts. J.P. Morgan has said it is spinning off One Equity as an independent firm.
M*Modal has about $750 million in debt, according to securities filings and credit-ratings firms, close to three times what it carried before the August 2012 buyout.
Moody's Investors Service and Standard & Poor's Ratings Services each downgraded M*Modal deeper into junk territory this year as the company's results weakened.
The Wall Street Journal reported in January that the company and some of its creditors were working with restructuring advisers.
M*Modal was founded in 1998 and grew through acquisitions. Sales jumped tenfold between 2006 and 2009. In 2010 revenue was about $415 million and the company, then known as MedQuist Holdings Inc., sold stock the next year in an initial public offering at $8 a share. The company changed its name to M*Modal the following January, and it agreed to the buyout, at $14 a share, in July.
M*Modal's main business is transcribing doctors' voice recordings. One Equity believed that the introduction of new voice recognition technology would boost sales, people familiar with the matter have said.
The company's rollout of new technology hasn't yet brought much profit, though, and its regular line of business has come under pressure from abundant technologies that turn speech into text on the spot and adoption of electronic health records, credit analysts say.

Emily Glazer

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