Vision Group Holdings filed for bankruptcy first — could more be next? Insights from Provident experts

West Palm Beach, Fla.-based and private equity-backed Vision Group Holdings said the COVID-19 pandemic worsened its financial issues when it filed for Chapter 11 bankruptcy at the beginning of June. As the ramifications of the virus continue to make themselves known, will this be a one-time occurrence or the beginning of a chain of similar filings?

Provident Healthcare Partners Director Eric Major and Associate Steven Grassa discussed the filing with Becker's and predicted how ophthalmology-based investments were going to be hit by COVID-19.

While Chapter 11 bankruptcy is a common occurrence in the world of business, specifically in retail, it's not as common in healthcare, because practices are more recession-proof than more cyclical businesses, Mr. Major said.

Vision Group Holdings and its associated brands, Laser Vision Institute and TLC Laser Eye Centers, focus primarily on performing Lasik eye surgery. In the pandemic-recessed economy, the financials around elective Lasik surgery aren't as promising as a general ophthalmology practice.

"Lasik, cash-pay providers are more susceptible to downturns and reductions in disposable incomes than a general ophthalmology provider that's focused on reimbursable procedures would be," said Mr. Grassa. "[Lasik centers are] more cyclical than medically-focused, ophthalmology providers that treat a wider spectrum of eye care disorders, including cataracts, retinal diseases and glaucoma."

The filing will protect Vision Group Holdings from creditors as it seeks to reorganize its business operations and potentially find a buyer, Mr. Major said. However, now the company will have to get court approval to take out additional lines of credit or sell the business.

As for potential buyers for VGH, the pool will likely pivot from growth-minded investors to firms that specialize in distressed assets. VGH appears to be operationally stable, but is in need of corporate and balance sheet restructuring to bring the financial figures back in line, said Mr. Grassa. He expects that there will be plenty of buyers, many focused on distressed investing, that will take a run at the deal, however.

Ophthalmology's post-COVID-19 outlook
While VGH was the first domino to fall, it's unclear whether more will follow. While most groups seemed to have weathered the first wave of the pandemic and its related shutdown, some practices currently crippled by the lack of cash flow need to make accommodations to recover.

The worst-case scenario for ophthalmology and most other businesses is a second wave of COVID-19 cases coming in the fall. If the U.S. uses similar measures to fight the virus, it could have a disastrous effect on all types of businesses, including ophthalmology practices.

"It's going to be tough for groups if a second wave hits and practices have to operate at drastically reduced volumes againMr. Grassa said. " It seems most groups have gotten through the first wave, but if practices have to go through this again, it's going to be detrimental to a lot of businesses, and not just in eye care."

As for potential investors, PE-backed platforms that didn't overextend their resources during the pandemic could continue to grow. However, key participants that will drive M&A actvity, will be creditors, who are currently reluctant to lend funding needed to close deals. If volumes return and businesses look like they're going to recover, M&A will likely follow suit.

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