Elite Dental mulling strategic options to reduce debt load, sources say

09 September 2020 - 02:11 pm UTC

by Deborah Balshem in Fort Lauderdale and Claire Rychlewski in Chicago

Elite Dental Partners is exploring strategic options to reduce its debt load after the company's financials saw a hit from the coronavirus pandemic, four sources familiar with the matter said.


The Chicago-based dental support organization (DSO) is in discussions about a potential debt-for-equity exchange, according to the sources. Cressey & Company still owns Elite Dental, while Golub Capital remains a lender to the company, one of the sources said. Golub provided financing for Cressey’s mid-2018 acquisition of Elite, which saw existing backer Tyree D’Angelo Partners stay on as a minority partner.


Two of the sources said that at least some stakeholders will see the value of their equity in the company wiped out.


This comes after Golub ended up taking ownership of another Cressey investment, dental laboratory operator Sentage, which does business as Dental Services Group, this news service reported in July.


Cressey and Tyree & D’Angelo still list Elite as a current portfolio company on their respective websites.


Elite’s debt load stands at roughly USD 130m, according to two of the sources and a fifth source familiar. Like many DSOs, Elite has dealt with considerable revenue losses caused by restrictions related to the COVID-19 pandemic, all of the sources said.


Prior to the pandemic, Elite generated around USD 130m to USD 140m in revenue, with adjusted EBITDA of around USD 20m, three of the sources said. EBITDA plummeted after the onset of the pandemic but has been steadily climbing as lockdowns recede, two of the sources said, noting July and August as strong profit months for the company.


Founded in 2014, Elite marketed itself on USD 15m in projected full-year EBITDA during its 2018 sale process, according to a Wall Street Journal report.


Elite had more than 80 locations in 10 states at the time of its sale to Cressey. The company currently operates in 13 states, according to its website.


DSOs provide non-clinical business and administrative functions such as payor relations, supply vendor management, capital equipment procurement, staffing management, technology, finance and marketing.


The space has been hit hard by the COVID-19 crisis, which saw patient volumes decrease dramatically in the months following the outbreak, according to three of the sources. Though the market is slowly starting to rebound, and some practices are seeing a return of patient volumes to 70% to 100% of historical norms, many DSOs now have too much leverage to bounce back, they said.


As an example, Benevis, another DSO, filed for bankruptcy protection in the Southern District of Texas on 3 August with a stalking horse bid from pre-petition lender New Mountain Capital. The investor bought out equity sponsors Littlejohn & Co and Tailwind Management, according to court filings.


Elite, Cressey and Tyree did not respond to requests for comment. Golub declined to comment.