InSight Health Services Holdings Corp., a provider of medical scanning services with yearly sales of $300 million, has emerged from a quick bankruptcy restructuring that saw the company turn over most of its ownership to bondholders.
Lake Forest-based InSight traded 90% of its common stock to bondholders, who in turn forgave $195 million worth of debt due in 2011.
“We did come out of it quickly, but it was in accordance with the plan we were trying to put forward,” InSight Chief Executive Bret Jorgensen said.
The company opted for bankruptcy in May to force about 20% of bondholders that didn’t respond to InSight’s offer to convert their debt to stock.
The holdouts represented some $30 million in debt and $3 million a year in interest payments, according to Jorgensen. No one challenged InSight’s plan in bankruptcy court, he said.
“It was just a way to make sure we had a full, clean separation from that unsecured debt,” Jorgensen said.
InSight faced a looming debt crunch.
The company has been squeezed by reductions in federal funding for its services as well as pressure from insurers for lower prices, according to Jorgensen.
That’s crimped the company’s cash as payments on its debt, some of it at adjustable interest rates, has risen. InSight had about $500 million in debt before the restructuring.
The bankruptcy was focused on the stock-for-debt swap and didn’t involve other creditors or employees, Jorgensen said. InSight didn’t lose any business during the restructuring, he said.
“Now we are back to business as usual,” Jorgensen said.
Hospitals that were waiting to sign contracts with InSight based on its pledge to emerge from bankruptcy by August have done so, he said.
InSight, which had been private, now trades on the low-profile Bulletin Board exchange as a result of the restructuring. The company’s market value wasn’t immediately known.
Going public wasn’t in the company’s original plan, Jorgensen said. It was a way to get the bankruptcy done without triggering a change-in-control provision, he said. Some bondholders also wanted InSight to be public, according to Jorgensen.
InSight’s new board of directors hasn’t broached the issue of trying to move the stock to a more high-profile exchange, he said.
The company has more than 200 medical imaging centers and mobile units that call on hospitals and doctors’ offices. It offers computed tomography scans and other specialized X-rays. Customers include managed care companies, hospitals and others in more than 30 states.
Competitors include Anaheim-based Alliance Imaging Inc.
For now, InSight isn’t talking about its strategy for growth until it completes a registration with the Securities and Exchange Commission for $15 million in debt offered in July. Some of the proceeds were used to pay costs related to the restructuring.
Cutting the company’s debt to a manageable level “gives us the ability to focus on the two core businesses we have,fixed-site imaging centers and our mobile division,and gives us a little more flexibility in dealing with those businesses,” Jorgensen said.
As part of the change, InSight has five new directors, including Eugene Linden, a vice president and chief investment strategist of Bennett Management, a hedge fund manager that’s now InSight’s largest stockholder.
Bennett’s holdings are in the 20% ballpark, Jorgensen said.
The firm played a key role in negotiations over the restructuring plan, he said.
Jorgensen and Steven Segal, a special limited partner with J.W. Childs Associates LP of Boston, are the lone holdovers from InSight’s prior board.
J.W. Childs and Halifax Group LLC of Washington, D.C., took InSight private nearly six years ago. The pair now owns 10% of the company, down from an earlier majority.
Jorgensen, InSight’s chief executive since 2005, previously headed AdvoLife Inc. of San Jose, a provider of senior care services that was bought by Los Angeles-based LivHome Inc. in 2004.
Earlier in his career, Jorgensen cofounded TheraTx Inc. of Georgia, which later went public and now is part of Kindred Healthcare Inc. of Kentucky.
Jorgensen said he never thought he’d wind up going through bankruptcy reorganization.
“Sometimes they say experience is what you get when you want something else,” he said. “I learned a lot about this whole process of restructuring. I’ve been through a public offering. That’s a fun, celebratory process to go through. This was a very different type of process.”
