New Coverage/Issuer Covenant Card: Hanger Inc.

Relevant Items:
Covenants Tear Sheet, Debt Document Summaries
Hanger’s Debt Documents

Hanger Inc. is a leading national provider of orthotic and prosthetic (“O&P”) patient care services and solutions. According to its most recent 10-Q, the company provides O&P services, distributes O&P devices and components, manages O&P networks, and provides therapeutic solutions to patients and businesses in acute, post-acute and clinic settings. Continue reading for our Americas Covenants team's analysis and conclusions from the Hanger Inc covenant card and Request a Trial for access to the linked debt documents, tear sheets, and summaries as well as our coverage of thousands of other stressed/distressed debt situations.

Hanger reported that its business volumes were adversely affected by the Covid-19 pandemic; for example, patient appointments were down 16% year over year for the three months ended Sept. 30, 2020. Likely due to its Covid-19-related difficulties, Hanger amended its credit agreement in May 2020 to provide for financial covenant relief. This amendment, which, because the financial covenant is for the benefit of the revolving lenders only, was only with the revolving lenders, also limited the company’s ability to use certain baskets in its negative covenants until it delivers a compliance certificate for the quarter ended March 31, 2021. For more information on the restrictions, please see our credit agreement summary, available here.

The company’s capital structure as of the end of its third quarter is shown below, for reference:

 

 

• Financial covenants - The credit agreement contains two financial maintenance covenants under the revolver: a 2.75x interest coverage ratio and a 5.25x first lien leverage ratio (dropping to 5x for the quarter ending June 30, 2021, and then 4.75x on and after the quarter ending Dec. 31, 2021). Both covenants were met as of Sept. 30.Prior to the covenant relief amendment, the required first lien leverage ratio for the quarters ending June 30, 2020, through March 31, 2021, was 4.5x, dropping to 4.25x with the quarter ending June 30, 2021, and then 3.75x on and after the quarter ending June 30, 2022.In addition to loosening the required ratio, the covenant relief amendment made two temporary changes that make the ratios easier for the company to meet. First, in calculating EBITDA for the quarters ended June 30, 2020, and Sept. 30, 2020, the company can add back certain lost revenue as a result of the Covid-19 pandemic. Second, for the quarters ending June 30, 2020, through March 31, 2021, the company can net all unrestricted cash and cash equivalents. (The credit agreement otherwise permits the lesser of $30 million and all unrestricted cash and cash equivalents to be netted.)


• Debt and lien capacity - Until the company delivers a compliance certificate for the quarter ending March 31, 2021 (no later than May 15, 2021), which ends the covenant relief period, the company can incur $40 million of secured debt using its general debt and general lien baskets. Hanger’s incremental debt/incremental equivalent debt basket (which permits $125 million of debt, plus an amount such that the first lien net leverage ratio would not exceed 3.8x) is not available during the “relief period” created by the first amendment; neither is an unsecured ratio debt basket permitting unsecured debt as long as the net leverage ratio does not exceed 4.65x.


• Restricted payments, investments - While the covenant relief amendment is in effect, the company can make $15 million of general restricted payments and $55 million of investments outside of the loan parties. After the covenant relief period, the company can make at least $30 million of general restricted payments and $70 million of investments outside of the loan parties, as well as restricted payments or investments using an “Available Amount” basket as long as its net leverage ratio is not greater than 3.5x.

--Alisha Turak