In accordance with a previously-agreed restructuring plan with lenders, Patriot National, Inc., an insurance technology and outsourcing firm, has officially filed for chapter 11 bankruptcy protection and reorganization.
The chapter 11 filing was made Jan. 30 in the U.S. Bankruptcy Court for the District of Delaware by the company and its direct and indirect U.S.-based subsidiaries.
The move was expected. In November, the Fort Lauderdale-based company announced a restructuring support agreement (RSA) with its lenders, Cerberus Business Finance, LLC and its affiliates, and TCW Asset Management Co. LLC., which have agreed to acquire the financially troubled firm.
Patriot National’s financial woes came to a head in mid-November with the announcement that its largest workers’ compensation customer, Guaranteed Insurance Co. (GIC), would be placed in receivership by Florida regulators. The companies were mutually owned by founder, majority stockholder and former CEO Steven Mariano, who resigned from Patriot National last summer.
GIC held an estimated 10 percent of Patriot National’s stock and accounted for 60 to 70 percent of its business.
GIC provided alternative market workers’ compensation insurance in 31 states, with 8,600 active polices in force as of Nov. 13, including 1,250 in Florida. Under the liquidation order of Florida regulators, all GIC policies were cancelled effective Dec. 27.
The company’s recapitalization under the RSA and the bankruptcy plan include a new lending facility. The plan will provide the capital structure needed to revitalize operations and funds to grow the business, according to John Rearer, CEO of Patriot National.
According to the bankruptcy plan:
- Employees will continue to receive all wages in the ordinary course of business
- Broker commissions will be paid in the ordinary course of business
- Carrier customers can be assured of uninterrupted service and payments in accordance with the terms of their current agreements
- Vendors will continue to be paid going forward pursuant to existing terms
The company intends to complete its restructuring and emerge from bankruptcy in the second quarter of 2018.
Rearer said that during the chapter 11 and beyond, the company intends to operate its business in the “ordinary course with limited impact” on customers.
Shortly after Florida regulators took over GIC, Patriot National filed a forbearance agreement with the Securities and Exchange Commission that said it would be laying off 250 employees, representing approximately one-third of its workforce.
After the company emerges from bankruptcy, Cerberus and TCW will convert a portion of their claims under the financing agreement in consideration for 100 percent of the new equity to be issued in Patriot National and the subsidiaries under the plan. All existing equity interests in Patriot National and its subsidiaries will be extinguished, and Patriot National will no longer have any affiliation with its founder and former CEO Mariano.
“In cooperation with our lenders, we have taken a significant step in securing the future of Patriot National. Through this process we will reduce our debt, improve our liquidity and strengthen our financial condition, creating a more competitive company no longer bogged down by the historical relationships with and receivership of the Guarantee Insurance Company,” said Rearer.
One of Patriot National’s subsidiaries, Patriot Underwriters Inc., is a national program administrator that underwrites and services workers’ compensation insurance for insurance companies.
Another affiliate of Patriot National, Ashmere Insurance Co., is being acquired by New York-based Bedrock Insurance Group Holdings. Ashmere is a workers’ compensation insurance carrier licensed in 15 states.
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