Confluence of factors led to LMI's bankruptcy filing

MOUNT VERNON, N.Y. - Landauer Metropolitan Inc. (LMI) is positioning itself for a quick sale in the wake of its decision to file for Chapter 11 bankruptcy protection, according to industry watchers.

During a hearing Aug. 19, a U.S. bankruptcy judge gave LMI the go ahead to use its cash collateral to fund day-to-day operations until it is sold at auction. The company already has a $22 million stalking horse bid from Quadrant Management, a private equity firm that specializes in company restructuring. LMI seeks to close on the sale by Oct. 14.

“They are going to try to get that sale banged out pretty soon,” said Eric Monzo, a restructuring attorney with Morris James in Wilmington, Del. “In the meantime, they are going to maintain the status quo.”

LMI, a powerful regional player, took a turn for the worse earlier this year when it wasn't awarded any contracts for Round 2 of competitive bidding. In an Aug. 16 court filing, the company cited an anticipated $26 million decline in revenue as a result of the program. Medicare/Medicaid comprise about 35% of LMI's revenue, which fell from $137 million in fiscal 2012 to $128.5 million in fiscal 2013.

The filing also cites the loss of a large managed care contract; a reduction in reimbursement rates from managed care organizations; and the impact of Hurricane Sandy.

“They are a very strong company, but if you don't get the bid and you are a Medicare provider, it's not good,” said Bob Leonard, an analyst with The Braff Group. “Once it goes bad, it really goes bad.”

Compounding LMI's troubles: A planned merger with AllCare Services, which was awarded contracts in Round 2, fell apart in June. Following that, about 75 employees left the company, including former CEO Lou Rocco. As a result, there is “contentious litigation between the parties” pending in New York state courts, according to the filing. Company founder and former CEO Alan Landauer has retaken the reins—a move that industry watchers consider a positive step.

LMI, whose majority shareholder is Clairvest, a Toronto-based private equity firm, listed in its filing more than $29 million in senior secured loans to TD Bank; $6 million to investors on a second-lien obligation; and about $15 million in unsecured debt to a variety of vendors.

“If you look at that debt compared to other big companies, it is significantly less of a percentage of their revenue,” said Rick Glass, president of Steven Richards & Associates. “It looks like more of a situation that can be handled.”

LMI, which serves more than 240,000 patients in eight states throughout the Northeast, presents a risk to potential buyers, but also an opportunity, say industry watchers.

“It's got scale, locations and relationships,” said Jonathon Sadock, managing partner with Paragon Ventures. “It's a big company and some people see that as an opportunity to fix what might be broken.”

Both Landauer and Clairvest declined to comment for this story.