The Center for Autism and Related Disorders has filed for Chapter 11 bankruptcy protections and entered into a stalking horse bid agreement with a group led by its founder and ex-CEO Doreen Granpeesheh.

The news comes after months of rumors regarding CARD’s status, with multiple sources telling BHB they believed the company was exploring strategic alternatives, including a sale. CARD did not respond to BHB’s previous requests for comment when asked about that possibility.

CARD is five years into a hold period with the private equity arm of the financial giant Blackstone (NYSE: BX). Other sources close to the company tell Behavioral Health Business that the company is considering closing additional state markets.

Last year, CARD closed 10 of its state markets as inflation, wage pressures and stagnant fee-for-services rates squeezed several autism providers in the space.

The company also seeks court approval for $18 million in new debtor-in-possession financing from its existing secured lenders. One of those lenders includes Ares Capital Management LLC.

The stalking horse bid set by Pantogran LLC, the group led by Granpeesheh, is meant to be something of a minimum for the company. Other interested parties may bid on the company through the bankruptcy court. Sangam Pant is also involved with the bid.

Court documents show that Pantogran has entered into an agreement with CARD to acquire substantially all of the company’s assets for $25 million, “setting the ‘floor’ for bidders in the continued marketing process postpetition.”

CARD filed in the U.S. Bankruptcy Court for the Southern District of Texas.

In the year ending in April, the company’s revenue totaled $160 million, its adjusted loss totaled about $22 and its net loss totaled $82 million. Over the same period of time, the company’s operating expenses totaled $144 million, including bad debt.

It’s not clear how the bid process will go. Several sources in the industry have told BHB that the Chicago-based M&A firm Livingstone Partners was representing CARD in a sale process and that the process wasn’t advancing in the current investment environment.

CARD landed its private equity backing from Blackstone in 2018, the high-point of extravagant multiples for autism therapy companies. Since then, the market for autism therapy companies has rationalized as investors have gained industry savvy. Also, interest rates have made deals more expensive while the present wage and labor crunch further compresses potential multiples, leaving companies that financed five years ago few options.

The proposed deadline from CARD for other bids is July 14. It will hold an auction on July 17 and seek court confirmation and hold a sale hearing on July 20, the court documents state.

CARD declined to comment further than its written statements.

A months-long deal search

CARD started looking for strategic and capital alternatives after the “unprecedented impact of the COVID-19 pandemic” in October 2022, when the company retained Livingstone Partners.

By that point, several well-known pressures in the autism therapy segment had significantly impacted the company’s financial circumstances. These included a national labor shortage limiting its ability to find registered behavior technicians (RBTs), inflation driving up labor and operating costs, and unprofitable payer contracts.

“The COVID-19 pandemic compromised the lifeblood of the company — without enough qualified behavioral therapists [CARD] did not have sufficient resources to meet demand,” the court documents state.

The documents also point to the burden of leases of centers that were not used during the height of the pandemic, when most non-emergency health care services were closed by local authorities in many jurisdictions.

In 2022, CARD secured higher rates from some but not all payers that had not substantially changed since the relationships were established between 2012 and 2016.

“[C]ompounded by these challenges, notwithstanding [CARD’s] great treatment success, [CARD] collected revenues below what it expected for years,” the documents state.

Also in October, CARD secured multiple rounds of bridge financing, established a special restructuring committee within its board of directors, right-sized its lease footprint by closing centers and executed a new business plan.

The company has closed 92 locations since January 2022.

The marketing process for a sale or other alternatives began in November. The process generated several potential suitors before Granpeesheh’s and Pant’s deal.

CARD signed an exclusivity agreement with a bidder on March 13 after generating interest from 50 potential partners that signed nondisclosure agreements, indications of further interest from 13 of them and five letters of intent by the end of January 2023, the court documents state.

The documents BHB reviewed do not name the bidder.

How the first deal fell apart

CARD ultimately rejected the deal from the unnamed bidder in mid-May.

Initially, the bidder offered to close the transaction out of the courts. However, the bidder changed its offer and proposed becoming a stalking horse as part of an in-court process after more than two months of due diligence.

The bidder also lowered its offer for CARD as part of the new proposal. Court documents state that then “CARD and their advisors shifted their focus to an in-court restructuring.”

Two weeks later, the bidder reduced its bid even more. The new offer came after the end of the exclusivity term.

The deal was deemed “unactionable” and rejected by CARD.

Livingstone Partners then reopened the marketing process by contacting other potential suitors.

Granpeeshah already holds a 21% stake in the company. Blackstone acquired a 70% stake in CARD in 2018 in a deal that valued the company at $600 million, according to Pitchbook.

Granpeesheh, according to Forbes, received about $315 million from the deal and reinvested $135 million of those proceeds in CARD. She left the CEO spot in 2019 and resigned from the board late last year.

CARD needs cash now

The court filing also details the company’s need to secure additional cash to operate and fund the bankruptcy proceedings.

“Without immediate financing, [CARD] will be unable to pay essential costs required to continue operating as a going concern and to conclude their marketing process, resulting in immediate and irreparable harm to [CARD’s] business and, most importantly, their patients,” the documents state.

CARD secured debtor-in-possession financing, but the terms of the financing require speedy approval from the courts, the documents state.

The company, the documents state, has about $2.1 million of cash on hand, “which … is insufficient to meet even the Debtors’ near-term liquidity needs, let alone fund these Chapter 11 cases.”

To cope with “razor-thin liquidity,” CARD has notified some corporate employees that their positions may be eliminated. The company issued WARN notices last week “out of an abundance of caution” due to the uncertainty regarding the final deal from the bankruptcy proceedings. Treatment center employees did not receive these notices.

“The dismissal of the noticed employees is not currently contemplated in [Pantogran’s bid],” the court documents state.

In the past, the company has turned to closing centers en masse as part of its strategy. Its footprint reduction resulted in CARD pulling out of 10 state markets. The company stated in written statements that it intends to continue operating all centers during the process.

“Notably, I believe the [stalking horse bid] supports a seamless transition of all patients and each of the approximately 130 treatment centers and preserves the majority, if not all, of [CARD’s] workforce,” the documents state.