RP Delays Finance Drama for Another 4 Years

Update 2/27/2024:

S&P broke down the uses of that $720MM investment: $380MM to pay off the revolving credit line. $168MM for the company’s term loan. $68MM will cover its secured notes. $100MM to transactional costs and people’s pockets.

So that $500MM in “cash and liquidity” RP reported isn’t much cash. It’s mostly liquidity in that they can draw on the credit line again now that it’s been paid.

If RP invests in “growth” as promised, it won’t really be with this $720 million. That’s mostly spoken for. It will be with more freshly borrowed money from the revolver.

I’ve heard unverfied reports that the main investment here was apparently a $600MM rescue from venture firm NEA, RP’s first investor. If true, it represents a massive doubling down to prevent their initial investment from going to zero in a bankruptcy. Given the S&P breakdown, the amount they put in seems like the minimum required to get the refinancing deal done and not just a random doubling of previously published expectations due to high investor confidence.

If this all goes south one day, will make an excellent case study for the sunk cost fallacy.

They may not know how to run a radiology business, but they inarguably understand how to play the finance game: Radiology Partners completed its “comprehensive set of financing transactions to strengthen its financial position.”

In doing so, they ended up raising $720 million in preferred equity. They successfully used the promise of a substantial equity raise to get their debtholders to refinance, then used the promise of successful refinancing to further raise an additional ~$400 million.

This impressive fundraising success is going to be an even more substantial dilution of the current radiology shareholders. Radiologists now own less of this company, and because this preferred equity is reportedly paid in kind (as we discussed here), the dilution will increase over time. If you’re an RP shareholder, don’t worry though: you’ll also have the chance to participate in this fundraising round if you’d like to invest more of your money in the “leading radiology practice in the U.S.”

Of the new equity, $500 million will be used to “fund continued growth and investment in innovation.” That’s enough to buy a few more practices, but I suspect most of it will go to operational cash burn (particularly fluffing current practices negotiating for more money) and possibly some AI investments. In my view, doubling down on AI is RP’s real long-term hope and plan.

7 Comments

Kateryna 02.23.24 Reply

What specific details are provided about Radiology Partners’ plans for using the $500 million raised for “continued growth and investment in innovation”?

Ben 02.23.24 Reply

Absolutely none.

Mark 02.24.24 Reply

Why so sour Ben? Look on the bright side, you have at least 4 more years to hate on them.

Ben 02.26.24 Reply

For others reading, RP was never going anywhere. A bankruptcy may have changed their owners (and maybe put a dent in their large signing bonuses), but the company is large and valuable.

The only thing surprising here is the scale of their equity raise. Underpromising and overdelivering is common practice, but I’m content to admit I didn’t think they’d get over $400 million more than they signaled.

Rich White-ney 02.27.24 Reply

Nothing happens until HOSPITALS drop the contracts because RP will continue to come begging them for subsidies. The same subsidies RP promised them they’d never ask for when they acquired practices or undercut existing groups, with promises of operational efficiency and Lean practice with scale.

Hospitals will determine their fate- but hospitals are unfortunately more blind than RP shareholders.

Underestimated overproducer 03.02.24 Reply

Haha hospitals are catching on to PE owned groups and the under promising they continue to deliver. I am part of an independent pvt practice in Florida and the hospitals in our region prefer not to do business with PE back groups.

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