Connections Community Support Programs

THE DEBTOR RUNS A NETWORK OF NON-PROFIT TREATMENT CENTERS

The Debtor filed for bankruptcy on April 19, 2021. It is the primary company operating a network of treatment centers focused on providing substance use recovery care and mental health treatment. The Debtor states that it has five “primary” lines of business:

1. Psychiatric/behavioral health services
2. Substance use disorder treatment
3. Housing and veterans’ services
4. Intellectual disabilities services
5. Operation support services

Through these lines of business, the Debtor provides care to over 10,000 Delaware residents each year and employs over 1,100 individuals. Connections is a 501(c)(3) entity, which is significant in bankruptcy cases because it means that the Debtor cannot be forced into a Chapter 7 liquidation by its creditors. With this potential pressure alleviated, the Debtor has a greater runway to pursue options that will allow for the continued existence of the business after bankruptcy, which is good for the community, employees, patients, and creditors.

UNSUSTAINABLE DEBT AND LITIGATION

This bankruptcy case is the result of increased expenses, decreased revenues, and expensive litigation against the Debtor. Specifically, the Debtor’s expenses have increased due to the COVID-19 pandemic. Before the pandemic caused widespread disruption, the Debtor provided primarily in-person therapy and treatment services. In order to continue providing these vital services, the Debtor had to spend heavily on additional personal protective equipment to protect employees and patients.

The Debtor’s revenues decreased precipitously in April 2020, when it lost its contracts with the Delaware Department of Corrections. These contracts previously generated approximately $60 million per year for the Debtor. Despite their loss, the Debtor believes it can adjust and operate profitably going forward.

Finally, the Debtor is facing litigation that is generating more than $1 million per year in additional expenses. Although the Debtor is optimistic about the results of this litigation, it is an obstacle that it hopes it can overcome through the course of the bankruptcy case.

Connections Community Support Programs estimates that it has approximately $29.8 million in secured debt and $12 million in unsecured debt.

CONNECTIONS GOING FORWARD

Because of the mounting expenses and loss of revenues, the Debtor became unable to pay its bills and was forced to file for bankruptcy. It began exploring a potential sale of its business as a going concern in early March 2021 and filed for bankruptcy in April 2021. The Debtor hopes that it can sell its business to new owners who can continue the Debtor’s critical mission and continue providing care to thousands of Delaware residents who so desperately need it.

As a result of the Debtor’s proactive efforts, they have secured a Letter of Intent, or LOI, from a prospective buyer to purchase “some of the operations” of the Debtor and its related non-debtor affiliates. The Debtor has yet to disclose who the potential purchaser is, what assets or operations of the Debtor the LOI covers, or the potential purchase price.

Considering the Debtor intends to conduct a sale process, it is difficult to impossible to discern what creditors should expect in terms of repayment from this bankruptcy case. The Debtor did project that it will be administratively insolvent, meaning that the Debtor thinks it will have no money left to pay unsecured creditors after it pays for the costs of the bankruptcy case, but a strong purchaser could change everything. Creditors will be solicited to join an official committee by the United States Trustee. Joining a committee is the best way for unsecured creditors to have a strong voice in the bankruptcy case.