17 votes

Prospect Medical Holdings files for bankruptcy in US after owners took hundreds of millions in payouts

12 comments

  1. krellor
    Link
    I know the bar to do so is quite high, but someday I'm going to get the satisfaction of seeing the court pierce the corporate veil and make a private equity owner liable for business debts...

    I know the bar to do so is quite high, but someday I'm going to get the satisfaction of seeing the court pierce the corporate veil and make a private equity owner liable for business debts following a takeover and cash extraction. In this case since the hospitals will continue to operate under chapter 11 and this will just allow an orderly restructuring of debt, there is little need to do so. But someday one of these owners will step too far and under capitalize the business enough to make it happen.

    16 votes
  2. [11]
    D_E_Solomon
    Link
    I don't usually agree with the narrative that all or even most PE is evil... but this one was cursed from the get go. From a case study: Yikes.

    I don't usually agree with the narrative that all or even most PE is evil... but this one was cursed from the get go. From a case study:

    Alta started out in 1998 as an eight-hospital network of community hospitals in Los Angeles,
    created by a hospital marketing executive, David Topper. Topper gained a $3 million investment
    from private equity firm Kline Hawkes and financed the rest of the $34 million purchase price
    through debt. A young employee of the firm, Sam Lee, oversaw the Alta investment, and by
    2001, quit the PE firm to become a 50-50 co-president with Topper. Their business model
    combined intense cost cutting with maximum, and often fraudulent, billing. According to a
    former company CFO, Alta’s hospitals, “… were sort of war-zone hospitals. They were very,
    very dirt cheap in every respect” (Elkind 2020). Lee and Topper were able to sell Alta to
    Prospect Medical based on inflated estimates of forthcoming profits, which Prospect’s auditors
    caught only after the company had agreed to pay off Alta’s debt and pay $50 million to both Lee
    and Topper. Prospect defaulted on its loans, leading to millions in lender penalties, and was
    delisted on the American Stock Exchange

    Yikes.

    13 votes
    1. [10]
      krellor
      Link Parent
      Private equity is one of those things where you really only hear the horror stories. Private equity helps a lot of good businesses, but that isn't a story. So we only read about the vultures.

      Private equity is one of those things where you really only hear the horror stories. Private equity helps a lot of good businesses, but that isn't a story. So we only read about the vultures.

      6 votes
      1. [9]
        D_E_Solomon
        Link Parent
        Yup - most PE investments are fine or understand the high risk of failure - VC and turnaround in particular. This particular example though is a really shitty business from the hop and the PEs...

        Yup - most PE investments are fine or understand the high risk of failure - VC and turnaround in particular. This particular example though is a really shitty business from the hop and the PEs continued it that way.

        5 votes
        1. [8]
          elight
          Link Parent
          Disagree. PE involvement in veterinary care? Everywhere I've encountered this, costs to pet owners increase while quality of care decreases. It's a cash grab. There are several PEs involved.

          Disagree. PE involvement in veterinary care? Everywhere I've encountered this, costs to pet owners increase while quality of care decreases. It's a cash grab.

          There are several PEs involved.

          10 votes
          1. [7]
            kmcgurty1
            Link Parent
            Venture capitalist, not veterinary care.

            Venture capitalist, not veterinary care.

            1 vote
            1. [5]
              JCPhoenix
              (edited )
              Link Parent
              I think they mean there's a lot of PE involvement in the veterinary space.
              3 votes
              1. [2]
                elight
                Link Parent
                That's one of the articles. It also jives with my experience of local veterinary clinics. Some of them are honest and open about their PE acquisition. Others have not been so public but the dated...

                That's one of the articles. It also jives with my experience of local veterinary clinics. Some of them are honest and open about their PE acquisition. Others have not been so public but the dated press releases reveal truth.

                Would be useful to change your link text to "PE" from "VC".

                2 votes
              2. [2]
                D_E_Solomon
                Link Parent
                Venture capital is almost always for startups and startup like businesses. Private equity, not venture capital, is in some veterinary.

                Venture capital is almost always for startups and startup like businesses. Private equity, not venture capital, is in some veterinary.

                1 vote
                1. JCPhoenix
                  Link Parent
                  This is what I get for trying to be smart, sigh. Appreciate learning the distinction!

                  This is what I get for trying to be smart, sigh.

                  Appreciate learning the distinction!

                  1 vote
            2. elight
              Link Parent
              Can't tell if this response is trying to be ironic but PE is in veterinary care.

              Can't tell if this response is trying to be ironic but PE is in veterinary care.

              2 votes