Wellpath: $522M DIP and $550M Debt Reduction in Chapter 11

Wellpath Holdings, Inc. and its affiliates provide medical and mental health services for correctional facilities, inpatient and residential treatment programs, forensic treatment facilities, and civil commitment centers. The company filed for Chapter 11 on November 12, 2024 in the U.S. Bankruptcy Court for the Southern District of Texas. Court filings describe operations across about 420 facilities in 39 states, headquarters in Nashville, Tennessee, and a workforce of more than 13,000 people. The company also said it has over 14,000 clinicians across 37 states and provides care to more than 220,000 patients daily in 400+ facilities.

Before filing, Wellpath said it reached a restructuring framework with approximately 85% of its first lien lenders and over 80% of its second lien lenders. The company planned to sell its Recovery Solutions business to a lender group providing DIP financing and to reorganize the correctional healthcare business with a private placement equity investment subject to higher or better offers, a transaction package it said was expected to reduce debt by about $550 million. Wellpath also disclosed a commitment for an approximately $522 million DIP facility with $105 million of immediate new money and up to $55 million of new money investment upon exit. Bloomberg Law coverage highlighted escalating labor and legal costs and the company's private equity ownership.

The plan was confirmed on May 1, 2025, and Wellpath announced it emerged from Chapter 11 on May 12, 2025 with ownership transitioned to an ad hoc lender group. In mid-April 2025, the company also reported a global settlement with the statutory unsecured creditors' committee and the ad hoc lender group, including a vote deadline and a scheduled confirmation hearing. Litigation around alleged care quality and wrongful death claims remained a material backdrop; NPR reported that a federal judge paused lawsuits during the case, and a Senate inquiry letter signaled broader scrutiny. In January 2026, the court entered a clarifying order governing how personal injury and wrongful death claims could proceed post-confirmation.

Debtor	Wellpath Holdings, Inc. (and 38 affiliates)
Court	U.S. Bankruptcy Court for the Southern District of Texas (Houston Division)
Case Number	24-90533 (ARP)
Petition Date	2024-11-12
Headquarters	Nashville, Tennessee
Operations	About 420 facilities across 39 states
Employees	More than 13,000
Patients Served Daily	More than 220,000
DIP Facility	$522.375 million ($105 million new money; $417.375 million roll-up)
Equity Financing	$20 million to $55 million
Plan Confirmation	2025-05-01
Emergence	2025-05-12
Claims Agent	Epiq Corporate Restructuring, LLC

Restructuring

Business scope and operating footprint. Court filings describe Wellpath's services across prisons, jails, inpatient and residential treatment facilities, forensic treatment facilities, and civil commitment centers. The operating structure is organized into three divisions, each tied to distinct customer bases and contract structures. The company said it maintained over 14,000 clinicians and professionals and served more than 220,000 patients daily, while court filings describe a footprint of about 420 facilities across 39 states.

Court filings describe a revenue model anchored in long-term government contracts. The SF division generally negotiates five-to-ten-year contracts with state governments and the Federal Bureau of Prisons, while LG contracts typically run three to five years and include annual escalators and spending caps for off-site treatment and pharmacy costs. The RS division uses bed-based contracts rather than occupancy-based arrangements, providing a different revenue cadence than the jail and prison divisions.

Court filings describe the revenue model as largely based on long-term government contracts, with built-in cost escalators tied to inflation, particularly in the LG division. The LG contracts also include structured spending caps for off-site treatment and pharmacy costs. The SF division's longer contract duration and the RS division's bed-based pricing were described as providing recurring revenue streams, but performance still depended on the economics of individual contracts and the allocation of risk with government partners.

The first day declaration also provides a revenue snapshot by division. In 2022, the company reported total revenue of approximately $2.059 billion, reflecting an 18% annual growth rate since 2006. For 2023, the SF division generated about $775 million (roughly 35% of total revenue), the LG division generated about $1.0 billion (roughly 45%), and the RS division generated about $425 million (roughly 20%). Excluding contracts terminated or rationalized in 2024, the 2023 SF revenue base was about $332 million and the LG revenue base was about $918 million.

The declaration notes that the SF division's 2023 revenue included three contracts that were later terminated in 2024, and that excluding those contracts SF revenue would have been about $332 million. The LG division's 2023 revenue similarly included contracts rationalized in 2024; excluding those contracts, LG revenue would have been about $918 million. The RS division's revenue profile also reflected a 14% annual growth rate since 2021, while total company revenue in 2022 was approximately $2.059 billion, representing an 18% annual growth rate since 2006.

Distress drivers and litigation exposure. Wellpath's CEO said the company faced pandemic-era costs tied to labor investments and expenses for equipment, testing, and vaccines, with inflation and rising interest rates described as added headwinds. Bloomberg Law also reported escalating labor and legal costs tied to the company's operating environment. Litigation risk was central to the case narrative: NPR reported a federal judge paused lawsuits against Wellpath during the restructuring, and a Senate letter sought information about the bankruptcy and alleged care concerns in correctional settings.

Court filings also point to contract performance issues. The company attributed a reversal in revenue growth during 2023 partly to underperforming contracts and said it terminated approximately 65 underperforming contracts between 2022 and the first half of 2024 due to outsized risk and insurance coverage challenges. Two material contracts in Michigan and Georgia produced a combined negative gross profit of about $40 million from 2022 through the first half of 2024, underscoring how contract economics and liability exposure affected performance.

Prepetition lender agreement and strategic path. The company disclosed an agreement with approximately 85% of first lien lenders and over 80% of second lien lenders. The framework contemplated a lender-backed sale of Recovery Solutions with those lenders as the stalking horse bidders, alongside a separate reorganization of the correctional healthcare business backed by a private placement equity investment, subject to higher or better offers. The company said the transactions were expected to reduce debt by about $550 million and maintain uninterrupted service delivery.

Court filings show that the financing and plan structure relied on roll-ups of first lien and second lien obligations into the DIP, followed by a takeback facility and equity financing that shifted portions of the capital structure into equity and trust interests at confirmation. The debt reduction described in the restructuring announcement aligned with that conversion of funded debt into new equity and liquidating trust recoveries.

DIP financing and liquidity runway. Bankruptcy filings show a senior secured superpriority multiple-draw DIP facility totaling $522.375 million. The facility combined $105 million of new money with $417.375 million of roll-ups, and it carried SOFR-based pricing with a cash-pay component, a backstop commitment premium, and a closing fee on new money. The DIP also imposed roll-up ratios of 3.95:1 for first lien debt and 0.50:1 for second lien debt, along with a 2.00% default-rate increase. Milestones embedded in the DIP documentation tied funding to the sale process and plan confirmation schedule.

The roll-up ratios tied prepetition debt conversion to new money participation, with first lien lenders eligible to roll up $3.95 for every $1 of new money and second lien lenders eligible to roll up $0.50 for every $1 of new money. The structure effectively combined new liquidity with a conversion of prepetition debt into postpetition obligations.

The actual timeline extended beyond several of those targets. The bidding procedures order was entered on November 19, but the plan and disclosure statement were filed on December 20 rather than the early-December milestone. The Recovery Solutions sale order was entered on January 21, 2025 rather than the December 23 milestone, and plan confirmation occurred on May 1, 2025 after an April settlement with the unsecured creditors' committee set a revised voting deadline and confirmation hearing schedule. Emergence was announced on May 12, 2025.

Sale process and Recovery Solutions transaction. The court approved a two-track sale process for separate asset packages. The Recovery Solutions/consolidated assets track carried a mid-December bid deadline and auction, while the corrections assets track ran into late January. The sale order for Recovery Solutions approved a stalking horse transaction to RS Purchaser LLC and set the purchase price as a combination of a DIP liability release and assumed liabilities, with adjustments tied to reimbursements and cash levels. Court filings also authorized the buyer to credit bid DIP obligations and limited amendments that would increase the final cash component beyond $24.25 million without committee consent.

The purchase price structure effectively allowed the buyer to credit bid DIP obligations, while also requiring payment of any cash above the $10 million threshold and the assumption of defined liabilities. The sale order also included constraints on amendments to the purchase agreement, requiring committee consent if changes would increase the final cash amount above $24.25 million. Court filings further noted that post-closing reimbursements tied to critical vendor payments would reduce outstanding prepetition debt balances, aligning sale economics with the broader capital structure reset. Private sale of NBH assets. A subsequent private sale order approved sales of the NBH-N and NBH-S asset packages. Each package was sold for $1.00 in cash plus assumed liabilities, and the order approved assumption and assignment of contracts with cure costs payable by the buyers. The sale order found the consideration fair and reasonable and reflected that no cure amounts were owed for the assumed contracts.

Plan structure and equity financing. The confirmed plan left other secured and priority claims unimpaired while treating the first lien secured class and deficiency classes as impaired. First lien secured claims received 3% of new Class A common equity (subject to dilution) and $124.213 million of a takeback facility. Second lien deficiency claims and general unsecured claims received beneficial interests in a liquidating trust, and equity interests were canceled with no recovery.

The plan also defined an equity financing amount between $20 million and $55 million intended to leave at least $35 million of unrestricted cash after the effective date (excluding a $4.6 million management incentive plan reserve). New Class A common equity represented 66.67% of new common equity (subject to dilution) and was issued to equity financing participants and first lien holders. New Class B common equity represented 33.33% of new common equity and was issued to the liquidating trust, which also received $10 million of takeback debt funding.

Plan documents also provided for a liquidating trust and a liquidating trustee, with the liquidating trust agreement and trustee identity to be disclosed in the plan supplement. The trust structure was designed to hold the Class B equity and administer distributions for deficiency and general unsecured classes after the effective date.

The takeback facility is documented in a takeback facility credit agreement referenced in the plan. Under the plan's class treatment, $124.213 million of the takeback facility was allocated to Class 3 first lien secured claims, and $10 million of takeback debt was allocated to the liquidating trust. Plan definitions indicate that equity financing securities represented 97% of New Class A common equity, leaving the remaining 3% for the first lien class that received equity as part of its recovery package.

UCC settlement and plan calendar. In April 2025, Wellpath said it reached a global settlement with the statutory unsecured creditors' committee and the ad hoc lender group, with a voting deadline of April 22 and a confirmation hearing scheduled for April 30. The company described the agreement as setting a swift emergence timeline, and the announcement also listed restructuring advisors for both the debtor and the lender group. The plan was confirmed on May 1, 2025, and the company announced emergence on May 12.

Litigation stay and claim handling. Early in the case, the debtors sought to enforce or extend the automatic stay to non-debtor defendants such as professional corporations, directors and officers, and H.I.G. Capital. The motion emphasized indemnification obligations, insurance proceeds, and the risk that litigation would divert management from the sale and plan process. The amended final order enforcing the stay extended protections to specified non-debtor defendants and clients/customers until the earlier of the plan effective date, case dismissal, or April 30, 2025, and it established a process for plaintiffs to seek a determination that the stay did not apply to a specific claim.

The amended final order also required consultation with the creditors' committee before stipulations with co-defendants and preserved creditors' rights to seek stay relief through the bankruptcy court. It applied to claims involving professional corporations and their employees, directors and officers, and certain client or customer defendants, reflecting the breadth of litigation exposure during the case.

Post-confirmation, a January 25, 2026 clarifying order directed that prepetition personal injury and wrongful death claims could proceed in civil court with the liquidating trust as a nominal defendant. If coverage was unavailable or a claim fell within a self-insured retention, the order required plaintiffs to substitute the trust as the nominal defendant rather than pursuing post-restructuring debtors. The order barred suits against post-restructuring debtors except where inclusion was necessary to access insurance coverage, and it allowed the trust to remain largely passive in those actions unless the trustee chose to participate or settle. The order also confirmed that disputes concerning general unsecured claims that do not arise from bodily injury or wrongful death remain within the bankruptcy court's jurisdiction, while leaving third-party discovery rights intact and clarifying that judgments inconsistent with the plan would not determine allowed claim amounts.

Professional advisors. The company disclosed that McDermott Will & Emery served as legal counsel, with Lazard and MTS Health Partners as investment bankers and FTI Consulting as restructuring advisor. The ad hoc lender group was advised by Akin Gump Strauss Hauer & Feld, Ankura Consulting Group, and Houlihan Lokey, as listed in the emergence announcement.

The advisor roster underscores the multi-track nature of the case, with separate legal, investment banking, and financial advisory teams for the debtor and the lender group. The April 2025 settlement announcement and the May 2025 emergence press release both emphasized the coordinated roles of these advisors in moving the case toward confirmation and emergence.

Claims administration. Court filings identify Epiq Corporate Restructuring as the claims and solicitation agent. In a case with 39 debtors, the claims agent role is central to maintaining the claims register, distributing notices, and supporting voting and distribution mechanics tied to the plan and the liquidating trust. The claims agent also provides centralized access to claim forms, noticing updates, and other case communications for creditors and parties in interest, supporting claim tracking and distribution procedures.

Key timeline.

Frequently Asked Questions

What is Wellpath? Wellpath is a correctional healthcare provider that delivers medical and mental health services in prisons, jails, inpatient and residential treatment settings, forensic treatment facilities, and civil commitment centers. Court filings describe operations across about 420 facilities in 39 states, and the company has said it serves more than 220,000 patients daily with over 14,000 clinicians.

Why did Wellpath file for Chapter 11? The company cited pandemic-era costs tied to labor investments and expenses for equipment, testing, and vaccines, along with inflation and rising interest rates, in its restructuring announcement. Bloomberg Law also reported escalating labor and legal costs as part of the filing backdrop.

What restructuring framework did Wellpath announce before filing? Wellpath said it reached an agreement with approximately 85% of first lien lenders and over 80% of second lien lenders. The framework contemplated a lender-backed sale of Recovery Solutions with a stalking horse bidder and a separate reorganization of the correctional healthcare business backed by a private placement equity investment, subject to higher or better offers.

How large was the DIP financing and what were the key terms? Court filings show a $522.375 million DIP facility composed of $105 million of new money and $417.375 million of roll-ups. The facility priced new money at SOFR plus 7.25% (1% cash-pay and the remainder PIK), included a 10% backstop commitment premium and a 5% closing fee on new money, and tied maturity to milestones such as a 363 sale or plan effective date.

What was sold to RS Purchaser LLC and how was the price structured? The Recovery Solutions sale order approved a sale to RS Purchaser LLC under a stalking horse agreement. The purchase price included a $395 million release of DIP liabilities plus reimbursements and any final cash amount above $10 million, along with the buyer's assumption of specified liabilities.

What were the terms of the NBH private sale? The private sale order approved the NBH-N and NBH-S asset packages for $1.00 in cash each plus assumed liabilities. The order also approved assumption and assignment of contracts, and the cure notice reflected no cure amounts owed on the assumed contracts.

How were creditor classes treated under the plan? Class 3 first lien secured claims received 3% of new Class A common equity (subject to dilution) and $124.213 million of a takeback facility. Classes 5 and 6 received beneficial interests in a liquidating trust, while existing equity and section 510(b) claims were canceled without recovery.

What is the equity financing and new equity split? The plan defined an equity financing amount between $20 million and $55 million intended to leave at least $35 million of unrestricted cash after the effective date (excluding a $4.6 million MIP reserve). New Class A common equity represented 66.67% of new common equity and was issued to equity financing participants and first lien holders, while New Class B common equity represented 33.33% and was issued to the liquidating trust.

How did the plan address personal injury and wrongful death claims? A January 25, 2026 clarifying order directed that prepetition personal injury and wrongful death claims proceed in civil court with the liquidating trust as a nominal defendant. The order barred suits against post-restructuring debtors except where inclusion was required to access insurance coverage.

Who is the claims agent for Wellpath? Epiq Corporate Restructuring, 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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