ModivCare Inc. finalizes debt restructuring deal

ModivCare Inc. (NASDAQ:MODV), a provider of transportation services with annual revenue of $2.79 billion, has entered into a significant agreement that alters its debt structure, as detailed in a recent 8-K filing with the SEC. The Denver-based company, currently trading near its 52-week low and carrying a total debt burden of $1.3 billion, completed an exchange of $251 million in senior notes for second lien senior secured PIK toggle notes on Monday. According to InvestingPro analysis, the company operates with a significant debt burden and has been quickly burning through cash.

The transaction, initially disclosed on January 10, 2025, involved exchanging the company’s 5.000% Senior Notes due in 2029 for an equal principal amount of the new notes, under certain terms and conditions. This exchange was contingent upon receiving the necessary consents to amend the indenture governing the Senior Notes, including the removal of most covenants and events of default, and the release of guarantees by the indenture’s guarantors. With a current ratio of 0.79, InvestingPro data indicates that ModivCare’s short-term obligations exceed its liquid assets, highlighting the importance of this debt restructuring.

Upon gaining the requisite consents, ModivCare and the involved parties signed the Fifth Supplemental Indenture on March 7, 2025, implementing these amendments. This step also subordinated the Senior Notes to the company’s existing credit agreement debt, totaling $866.4 million, and the newly issued second lien notes.

The new Second Lien Notes will accrue interest at a rate of 5.000% per annum if paid in cash, or 10.000% per annum if paid in kind, with semi-annual payments starting April 1, 2025. However, interest will be paid in kind only if the company’s liquidity exceeds $100 million on the record date after March 15, 2026. These notes mature on October 1, 2029, and are guaranteed by ModivCare’s subsidiaries, ranking equally with other senior indebtedness and secured by nearly all company assets.

Moreover, the Second Lien Notes Indenture includes covenants restricting ModivCare’s ability to incur additional debt, make certain investments, and engage in other financial activities, subject to specified exceptions.

This restructuring could affect the rights of ModivCare’s security holders, as the new covenants limit the company’s capacity to pay dividends on its capital stock, which may impact common stockholders’ dividend receipts.

Investors are encouraged to review the full text of the Fifth Supplemental Indenture and the Second Lien Notes Indenture, which contain further details not summarized in this article, as per the 8-K filing. With the stock down 92% over the past year and a market capitalization of just $35 million, comprehensive analysis is crucial. For detailed insights into ModivCare’s financial health and valuation metrics, access the full Pro Research Report available on InvestingPro, which includes 18 additional ProTips and extensive financial analysis.

In other recent news, ModivCare Inc. reported its fourth-quarter and full-year 2024 financial results, which fell short of analysts’ expectations. The company’s Q4 earnings per share (EPS) were $0.19, significantly below the forecasted $0.76, and revenue was $702.8 million, missing the anticipated $718.94 million. Despite these misses, ModivCare’s stock experienced a rise in aftermarket trading, reflecting complex investor reactions to the company’s strategic initiatives. The company achieved operational cost savings of $35 million and launched new digital health services and AI technologies. Analysts at Stephens revised their outlook on ModivCare, reducing the stock’s price target from $7.00 to $3.50, while maintaining an Equal Weight rating, in light of the company’s strategic changes. These changes include the transition of Non-Emergency Medical (TASE:BLWV) Transportation contracts to fee-for-service models and the divestiture of certain segments. ModivCare’s full-year revenue for 2024 was $2.79 billion, a modest increase of 1.1% from the previous year, although consolidated adjusted EBITDA declined by 20% to $161.1 million. The company did not provide formal guidance for fiscal 2025, citing ongoing strategic reviews and divestiture processes.

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