Partners Pharmacy: Loan-to-Own Restructuring in the LTC Pharmacy Sector

Partners Pharmacy Services, LLC—a family-owned long-term care pharmacy that at its peak ranked as the third-largest in the United States, serving 48,000 residents across 16 states—filed for chapter 11 bankruptcy protection on August 13, 2025 in the Southern District of Texas. The filing came after years of declining Medicare reimbursements, the loss of major customer contracts, and a failed $5 million sale to prospective buyer SRX that collapsed just eight days before the petition date. The 15-debtor case proceeded to a November 4, 2025 Sale Order approving a credit bid by CS One, LLC—the prepetition secured lender that had acquired the company's bank debt in February 2023 and provided $6.5 million in DIP financing to fund the bankruptcy.

The transaction reflects a loan-to-own strategy: CS One acquired Partners Pharmacy's outstanding $44.5 million in bank debt from CIT Bank, provided bridge financing days before bankruptcy, funded operations through the DIP facility, and ultimately acquired substantially all assets through a credit bid of approximately $51 million—paying nothing beyond the debt it already held. The stalking horse bid contained no breakup fee, expense reimbursement, or other bid protections, limiting the Official Committee of Unsecured Creditors' leverage to object. Judge Lopez ruled that the sale was conducted fairly at arm's length and denied the Committee's motion for standing to pursue recharacterization claims—rejecting arguments that CS One's prepetition debt should be treated as equity given the lender's relationship with the debtors' ultimate equity owner.

The case reflects structural challenges in the $18-$19 billion long-term care pharmacy sector, where reimbursement rates have failed to keep pace with rising costs. Industry analysis shows LTC pharmacies spend more than $15 per prescription on services while Medicare Part D pays just $4 per prescription—a reimbursement gap that leaves operators covering approximately 75% of costs from other sources. As the Inflation Reduction Act's drug pricing provisions could reduce reimbursements on medications heavily used by seniors, Partners Pharmacy's restructuring illustrates consolidation pressures in the sector.

From Third-Largest LTC Pharmacy to Bankruptcy Debtor

Partners Pharmacy's trajectory from industry leader to bankruptcy debtor reflects a decade of mounting challenges that accelerated during and after the COVID-19 pandemic, compounded by customer losses, supplier disputes, and a capital structure that facilitated insider acquisition, according to the First Day Declaration.

Company history and founding. Partners Pharmacy was founded in 1998 in New Jersey as Partners Healthcare, L.L.C. The company grew to become the third-largest long-term care pharmacy in the United States, providing full-service medication management for skilled nursing facilities, assisted-living communities, long-term acute care facilities, and other institutional settings throughout the country. At peak operations, Partners Pharmacy served approximately 48,000 residents across 16 states plus the District of Columbia, with roughly 800 employees operating from 13 pharmacy locations. The company's service offerings included comprehensive medication management, automation technologies, infusion therapy, compounding services, and clinical systems—the full suite of specialized capabilities required to serve institutional healthcare settings.

Ownership structure and CareOne affiliation. All equity in Partners Pharmacy is indirectly owned by Daniel E. Straus—the American business executive and entrepreneur who founded CareOne LLC in 1999. CareOne operates over 50 nursing homes and assisted living facilities in the Northeast and admits approximately 20,000 patients annually, making it one of the largest senior care operators in the region. Straus also indirectly owns CS One, LLC—the entity that acquired the company's bank debt from CIT and ultimately acquired the business through credit bid. This ownership structure created vertical integration between Partners Pharmacy's largest customer base (CareOne facilities) and its ultimate acquirer (CS One), a relationship that would later become central to the creditor committee's objections to the sale.

CareOne affiliates represented Partners Pharmacy's largest customer base, accounting for approximately 8,000 of the 17,000 residents the company served at the time of bankruptcy. The State of New Jersey—through departments operating institutional healthcare facilities—represented another significant customer. This concentration meant that Partners Pharmacy's fortunes were closely tied to the CareOne enterprise, even before CS One acquired the company's debt.

Financial deterioration and contraction. Partners Pharmacy recorded net losses across three consecutive years: $10.4 million in 2022, $7.5 million in 2023, and $6.7 million in 2024—totaling $24.6 million in cumulative losses. The company lost customer contracts accounting for approximately 6,500 patients from the fourth quarter of 2021 through the end of 2022, a significant contraction that altered the business's scale.

By late 2022, Partners Pharmacy had initiated restructuring efforts, closing six pharmacy locations in Maryland, Texas, Virginia, Connecticut, Pennsylvania, and Florida, and selling one location in Fort Myers. By the petition date, the company operated from just four locations—Springfield Township (New Jersey), Connecticut, Massachusetts, and Texas—serving approximately 17,000 residents with 284 employees (239 full-time, 1 part-time with benefits, 4 part-time without benefits, and 40 per diem staff). The company had shrunk to roughly one-third of its peak patient base and one-third of its peak workforce.

Industry Headwinds: The Long-Term Care Pharmacy Sector

Partners Pharmacy's distress reflects structural challenges facing the $18-$19 billion long-term care pharmacy sector, where reimbursement rates have failed to keep pace with rising operational costs and regulatory burdens have increased without corresponding payment adjustments.

The reimbursement gap. A CliftonLarsonAllen analysis commissioned by industry groups found that the average LTC pharmacy spends more than $15 per prescription on services—including medication dispensing, delivery, clinical consulting, medication therapy management, and 24/7 on-call pharmacist availability—while Medicare Part D pays just $4 per prescription. This means LTC pharmacies receive reimbursement covering approximately 25% of their actual service costs, with the balance absorbed through other revenue sources or covered as losses.

Unlike retail pharmacies that generate significant revenue from front-end sales of consumer products, LTC pharmacies operate closed-door models that depend entirely on pharmaceutical dispensing fees and related services. When reimbursement rates decline, LTC pharmacies have no alternative revenue streams to offset the margin compression. This economic vulnerability has intensified as payers have consolidated and Medicare Advantage plans have grown.

Medicare Advantage shift. Court filings identify the shift from traditional Medicare to Medicare Advantage plans as a driver of declining reimbursement at Partners Pharmacy. As managed care organizations negotiate lower pharmacy reimbursement rates, LTC pharmacies face margin compression without the prescription volume to offset per-unit losses. The Medicare Advantage penetration rate among seniors has increased over the past decade, indicating a structural reimbursement challenge.

Inflation Reduction Act impact. Effective January 1, 2025, the Inflation Reduction Act's drug pricing provisions allowed the federal government to negotiate "maximum fair prices" on certain brand-name drugs. Industry leaders warn the policy could reduce reimbursements on medications heavily used by long-term care residents—including insulin, inhalers, and the first ten drugs subject to negotiated pricing.

The Senior Care Pharmacy Coalition has warned that failure to fix the payment model could cost taxpayers up to $4.8 billion over the next decade. The coalition has proposed the Preserving Patient Access to Long-Term Care Pharmacies Act, which would establish a $30 supplemental supply fee for negotiated drugs to offset the reimbursement gap. Without congressional action, industry advocates contend many LTC pharmacies may not survive.

The CMS Medicare Prescription Payment Plan added further compliance requirements in 2025, requiring pharmacies to offer eligible Medicare Part D patients monthly payment installments under the MPPP provisions of the Inflation Reduction Act. For already-stretched LTC pharmacy operators, the additional administrative burden compounds financial challenges.

Market concentration and competitive pressure. National LTC pharmacies control over 90% of market share, with PharMerica operating more than 180 pharmacies in almost every state. PharMerica, a Fortune 1000 company formed from the 2007 merger of Kindred Healthcare's pharmacy division with an AmerisourceBergen subsidiary, represents the scale required to survive in the current reimbursement environment. Other major competitors include Prime Therapeutics, LifePoint Health, PharmScript, and AnewHealth.

This consolidation leaves mid-sized operators like Partners Pharmacy vulnerable when margins compress. Without the purchasing power, geographic diversification, or operational scale of the largest national players, regional LTC pharmacies face pressure when customer contracts shift or reimbursement rates decline. The broader industry trend indicates consolidation pressures as smaller operators either merge with larger platforms or exit the market.

The Failed SRX Transaction and Prepetition Debt Transfer

The bankruptcy filing followed a series of transactions that positioned CS One—an entity affiliated with the company's ultimate equity owner—as the acquirer through a loan-to-own strategy executed over two and a half years.

CIT to CS One debt transfer. Partners Pharmacy entered a $60 million Revolving Credit Facility with CIT Bank, N.A. on July 2, 2019, with CIT serving as sole lead arranger. By July 25, 2022, the outstanding balance under the facility stood at approximately $37.6 million. The facility included daily cash sweeps that collected Partners Pharmacy's available cash to service the revolving credit line—a structure that would become critical when liquidity tightened.

On February 23, 2023, CS One, LLC—an entity indirectly owned by Daniel Straus, who also indirectly owned Partners Pharmacy—purchased all outstanding obligations from CIT Bank. The transaction transferred control of the company's senior secured debt to an affiliated entity, setting the stage for the eventual loan-to-own acquisition. By the petition date, the balance had grown to approximately $44,524,814 as the company continued drawing on the facility while experiencing operating losses.

Cardinal Health supplier crisis. While the CIT-to-CS-One debt transfer was occurring, Partners Pharmacy's relationship with its primary pharmaceutical supplier deteriorated. By November 2022, Partners Pharmacy's balance with Cardinal Health had reached $29 million, prompting the supplier to change payment terms.

Cardinal Health changed payment terms to cash on delivery for new orders, requiring approximately $500,000 in daily pharmaceutical purchases to be funded immediately rather than on terms. This requirement was challenging for a company already experiencing cash flow problems: the daily cash sweeps under the Revolving Credit Facility (now controlled by CS One) prevented Partners Pharmacy from accumulating the cash needed to fund COD pharmaceutical purchases, while the supplier would not extend credit without payment.

Cardinal Health ultimately held a junior lien securing approximately $20.4 million in pharmaceutical supply obligations. As a junior secured creditor behind CS One's approximately $44.5 million senior position, Cardinal's recovery would depend on sale proceeds exceeding CS One's credit bid; no competing bids emerged.

The SRX transaction collapse. Against this backdrop of deteriorating finances and supplier pressure, Partners Pharmacy sought a strategic buyer. On May 9, 2025, the company executed a term sheet with SRX for the sale of substantially all assets. SRX paid deposits totaling $5 million in May and June 2025, representing a significant commitment to the transaction.

The reasons for the transaction's collapse are not detailed in public filings, but on August 5, 2025—just eight days before the bankruptcy filing—SRX terminated the term sheet and demanded return of its deposit. The collapse left Partners Pharmacy without another identified acquirer, while CS One was already positioned as the senior secured lender with control over the company's cash flow.

Bridge financing and bankruptcy preparation. With the SRX deal collapsed and liquidity exhausted, CS One provided $1.5 million in bridge financing on August 8, 2025—five days after SRX's termination notice and five days before the bankruptcy filing. This bridge facility funded the chapter 11 petitions and positioned CS One as the company's sole source of operating liquidity heading into bankruptcy.

The debtors filed a Motion to Reject the binding term sheet with SRX as part of the first-day filings on August 13, 2025. The court entered an order rejecting the term sheet on September 8, 2025, formally terminating any remaining contractual relationship with SRX and clearing the path for the CS One credit bid.

The 363 Sale: From Filing to Sale Order in 83 Days

The bankruptcy proceeded from filing to sale order, with CS One's stalking horse bid facing limited opposition despite the unsecured creditor committee's concerns about the transaction's arm's-length nature.

DIP financing terms. CS One provided a $6.5 million debtor-in-possession financing facility to fund operations through the bankruptcy process. The court entered an interim DIP Order on August 14, 2025—the day after filing—and a Final DIP Order on September 15, 2025. The DIP facility would roll into the credit bid purchase price, meaning CS One's postpetition advances would add to its secured claim rather than representing new money at risk.

The DIP facility required multiple extensions as the sale closing was delayed. Agreed orders extended the DIP through December 2025, with the fifth extension entered December 19, 2025.

Bidding procedures. The debtors filed the Bid Procedures Motion on August 15, 2025, proposing CS One as the stalking horse bidder. The court entered the Bid Procedures Order on September 15, 2025, establishing the timeline and requirements for competing bids. A Notice of Auction was filed September 16, 2025.

CS One's stalking horse bid offered approximately $51 million in credit—comprising its prepetition secured debt of approximately $44.5 million plus the $6.5 million DIP facility. Notably, the stalking horse bid contained no breakup fee, expense reimbursement, or other bid protections. While the absence of bid protections could reduce barriers for competing bidders, no competing bids emerged.

UCC objection and recharacterization claims. The Official Committee of Unsecured Creditors, appointed to represent the interests of trade creditors and other unsecured claimants, objected to the sale and sought standing to pursue recharacterization claims. The Committee's theory was that CS One's prepetition debt should be treated as equity rather than debt, given the lender's relationship with Daniel Straus—who indirectly owned both CS One (the lender) and Partners Pharmacy (the borrower).

Recharacterization is an equitable remedy that allows courts to treat purported debt as equity when the transaction's economic substance reflects an equity investment rather than a true lending relationship. If successful, recharacterization would subordinate CS One's claim to those of unsecured creditors, potentially enabling recoveries for trade vendors.

Judge Lopez denied the Committee's motion for standing, finding no colorable recharacterization claim. The court ruled that the sale process was fair and conducted at arm's length despite the relationship between CS One and the debtors' equity owner. The court found CS One's prepetition loan was valid debt entitled to treatment as a secured claim.

Sale approval. On October 27, 2025, Judge Lopez approved the sale of substantially all assets to CS One free and clear of liens, interests, and encumbrances. The formal Sale Order was entered November 4, 2025—83 days after the petition date.

Delayed closing. Despite sale approval, the transaction closing was delayed due to time needed by CS One to replace Cardinal Health as the company's primary pharmaceutical supplier. Cardinal Health's $20.4 million junior secured claim and the history of payment disputes made continued supplier relationships difficult; CS One needed to establish new supply arrangements before assuming operations.

Multiple agreed orders extended the DIP facility and closing deadlines through December 2025:

The closing remained pending as of late December 2025, with the company continuing operations under the DIP facility while CS One completed supplier transition arrangements.

Capital Structure and Creditor Treatment

The transaction structure meant that CS One's credit bid would capture substantially all value, leaving limited recovery for junior secured and unsecured creditors.

Senior secured creditor: CS One. CS One's approximately $44.5 million in prepetition secured debt held first-priority status, with the $6.5 million DIP facility adding to its secured position. The ~$51 million credit bid meant CS One would recover its full claim through acquisition of the business—converting its debt position to ownership without contributing new capital.

Junior secured creditor: Cardinal Health. Cardinal Health's $20.4 million junior lien claim was subordinate to CS One's senior position. Recovery for Cardinal would require sale proceeds exceeding CS One's credit bid, and no competing bids emerged. The supplier relationship's deterioration and the shift to cash-on-delivery terms in late 2022 reflected the payment disputes between the parties.

Unsecured creditors. Approximately $53 million in unsecured trade debt—including the unsecured portion of Cardinal Health's claim—faced minimal expected recovery. The UCC's unsuccessful effort to pursue recharacterization claims did not change that outcome, and the court's finding that CS One's debt was valid eliminated this avenue.

Professional Retentions

The case involved professional engagement across debtor and committee-side advisors.

Debtor Professionals.

Committee Professionals.

The pro hac vice admissions reflected the multi-jurisdictional nature of the legal team, with attorneys from multiple Pillsbury offices admitted to practice before the Southern District of Texas for purposes of the case.

Key Timeline

Frequently Asked Questions

Why did Partners Pharmacy file for bankruptcy?

Partners Pharmacy filed chapter 11 after years of declining margins from Medicare reimbursement cuts, the loss of approximately 6,500 patients between 2021 and 2022, supplier disputes with Cardinal Health that triggered cash-on-delivery payment terms, and net losses totaling $24.6 million from 2022 through 2024. A $5 million sale to prospective buyer SRX collapsed in August 2025, and the company pursued bankruptcy to preserve the business as a going concern.

Who acquired Partners Pharmacy and what did they pay?

CS One, LLC—an entity affiliated with Daniel Straus, who also indirectly owns the debtors—acquired the business through a credit bid of approximately $51 million. This comprised its prepetition secured debt of approximately $44.5 million plus the $6.5 million DIP facility. Because CS One paid with debt rather than cash, it contributed no new capital to acquire the business. The stalking horse bid contained no breakup fee or expense reimbursement.

What is a loan-to-own transaction?

A loan-to-own strategy occurs when a lender acquires a troubled company's debt—often at a discount—with the intent to convert that debt to equity through bankruptcy. In this case, CS One purchased Partners Pharmacy's bank debt from CIT in February 2023, provided bridge financing days before bankruptcy, funded operations through the DIP facility, and ultimately acquired the business through credit bid. The strategy allowed the lender to gain ownership without competing bidders or contributing new capital.

Who is Daniel Straus and what is his relationship to Partners Pharmacy?

Daniel E. Straus is an American business executive who founded CareOne LLC, which operates over 50 nursing homes and assisted living facilities in the Northeast and admits approximately 20,000 patients annually. Straus indirectly owns 100% of the equity in Partners Pharmacy, as well as CS One (the prepetition lender and acquirer) and CareOne (Partners Pharmacy's largest customer, representing approximately 8,000 of 17,000 residents served).

What happened to the SRX transaction?

Partners Pharmacy executed a term sheet with SRX on May 9, 2025, and SRX paid $5 million in deposits in May and June. On August 5, 2025—eight days before the bankruptcy filing—SRX terminated the agreement and demanded return of its deposit. The court rejected the term sheet on September 8, 2025. The collapse left CS One as the only identified acquirer.

Why did the UCC object to the sale?

The Official Committee of Unsecured Creditors sought standing to pursue recharacterization claims—arguing that CS One's prepetition debt should be treated as equity given the lender's relationship with the debtors' ultimate equity owner, Daniel Straus. If successful, this would have subordinated CS One's claim and potentially increased recoveries for unsecured creditors. Judge Lopez denied the motion, finding no colorable recharacterization claim and ruling that the sale was conducted fairly at arm's length.

What is causing distress in the LTC pharmacy industry?

Long-term care pharmacies face a reimbursement gap: they spend more than $15 per prescription on services while Medicare Part D pays only $4 per prescription—covering approximately 25% of actual costs. The shift to Medicare Advantage plans, which negotiate lower reimbursement rates, compounds the problem. Additionally, the Inflation Reduction Act's drug pricing provisions, effective January 2025, could reduce reimbursements on medications heavily used by seniors, including insulin and inhalers.

How large is the LTC pharmacy market?

The U.S. long-term care pharmacy market is approximately $18-$19 billion annually, with national LTC pharmacies controlling over 90% of market share. Major players include PharMerica (operating 180+ pharmacies in almost every state), Prime Therapeutics, LifePoint Health, PharmScript, and AnewHealth. This concentration leaves mid-sized regional operators like Partners Pharmacy vulnerable when margins compress.

Will Partners Pharmacy continue operating?

Yes. The sale to CS One was structured as a going-concern transaction designed to preserve continuity of care for approximately 17,000 residents. The company continues operating under the DIP facility while CS One completes the transition of pharmaceutical supply arrangements away from Cardinal Health. The closing remained pending as of late December 2025.

What happened to Cardinal Health's claim?

Cardinal Health held a junior lien securing approximately $20.4 million in pharmaceutical supply obligations. As a junior secured creditor behind CS One's approximately $44.5 million senior position, Cardinal's recovery depends on sale proceeds exceeding CS One's credit bid; no competing bids emerged. The relationship had deteriorated since November 2022 when Cardinal imposed cash-on-delivery terms.

Who is the claims agent for Partners Pharmacy?

Kroll Restructuring Administration LLC serves as the claims and noticing agent. The firm maintains the official claims register and distributes case notifications to creditors and parties in interest.

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