By Dietrich Knauth
(Reuters) – Prison health company Wellpath on Tuesday announced a settlement with its junior creditors, including people that had sued the company for allegedly providing substandard medical care, removing a major obstacle to the company’s exit from Chapter 11.
The settlement will provide $15.5 million to junior creditors, give them a 33.3% equity stake in the reorganized company and provide other benefits, Wellpath’s attorneys said at a bankruptcy court hearing before U.S. Bankruptcy Judge Alfredo Perez in Houston, Texas.
The court-appointed creditors’ committee, which previously opposed Wellpath’s restructuring, said that the deal offered a “meaningful recovery” for its constituents, and it will recommend that junior creditors vote in favor of the company’s bankruptcy plan.
“This is what we’ve been fighting for since the beginning of this case,” said committee attorney Nicholas Zluticky of law firm Stinson.
Many of the company’s junior creditors have litigation claims against Wellpath, which faced more than 1,500 lawsuits alleging that the company provided deficient medical care to prisoners. Other junior creditors include medical vendors who provided supplies, drugs or services to Wellpath.
With the junior creditors’ support, Wellpath will seek approval of its bankruptcy restructuring, which it says will significantly reduce the company’s debt, at an April 30 hearing.
Perez said that he was heartened by the settlement progress, and the possibility of a quick resolution of the case.
“This was a tough case, and it is still a tough case, and I really commend you for getting it to the finish line,” Perez said at the hearing.
In addition to the cash and equity stake, the settlement will provide creditors with $10 million in new debt owed by the reorganized company, Wellpath’s attorney Felicia Permian of McDermott Will & Emery said at the hearing.
Wellpath’s owner, HIG Capital, will fund part of the cash contribution, paying $3 million toward the junior creditor settlement.
Wellpath filed for bankruptcy in November 2024 to address its $644 million in debt, pressure from the litigation, and rising costs for labor and professional liability coverage.
When it filed for bankruptcy, Wellpath provided healthcare services in approximately 420 facilities across 39 states. Earlier in the bankruptcy, Wellpath received court approval to spin off its behavioral health division, which provided services at inpatient psychiatric hospitals, residential treatment centers and mental health rehabilitation centers.
The case is In re Wellpath Holdings Inc., U.S. Bankruptcy Court for the Southern District of Texas, No. 24-90533
For Wellpath: Felicia Perlman and Bradley Giordano of McDermott Will & Emery
For the unsecured claimholders’ committee: Brian Rosen of Proskauer Rose; Nicholas Zluticky and Zachary Hemenway of Stinson
Read more:
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Prison health company YesCare strikes deal in ‘Texas two-step’ bankruptcy
(Reporting by Dietrich Knauth in New York)
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