ModivCare files for bankruptcy, shares collapse nearly 70%
Restructuring plan aims to cut $1.1 billion in debt and inject $100 million in new capital, but existing equity is expected to be wiped out.
Shares of ModivCare Inc. plummeted nearly 70% on Tuesday after the healthcare services company filed for Chapter 11 bankruptcy protection. The Denver-based company announced a comprehensive restructuring plan to reduce its debt by over $1.1 billion and raise $100 million in fresh capital.
The pre-packaged filing in the U.S. Bankruptcy Court for the Southern District of Texas has the support of a supermajority of its lenders, including over 90% of its first-lien lenders. The agreement will see existing common stock cancelled, effectively wiping out current shareholders.
Despite the catastrophic drop in its stock price during regular trading, which closed at $0.56, the shares rallied over 32% in after-hours trading. The surge followed news of the restructuring agreement and the commitment of $100 million in debtor-in-possession financing from secured lenders.
"This recapitalization strengthens our balance sheet and allows Modivcare to accelerate our investment in innovation by combining technology and data with high-touch member engagement," said Heath Sampson, Chief Executive Officer and President of Modivcare. The company provides non-emergency medical transportation, personal care, and remote patient monitoring services, connecting patients with care providers.
Modivcare's leadership assured that its operations would continue uninterrupted during the restructuring process, with no expected impact on clients, members, or employees. The company has filed customary motions to ensure it can meet its obligations to vendors and pay wages and benefits as usual.
The restructuring will transition ownership to a new group of investors and aims to meaningfully reduce the company's annual cash interest expenses. Modivcare stated it expects to emerge from the bankruptcy process early in the fourth quarter of 2025, positioned for future growth.
The dramatic stock price collapse underscores the severe consequences for equity holders in Chapter 11 proceedings, even when a company has a clear path to reorganizing its finances. The subsequent after-hours rally suggests some investor confidence in the company's post-bankruptcy future, although it offers little solace to shareholders who have seen their stakes erased.