The consortium of private equity firms that owns America's largest dental chain has dropped plans to sell its affiliated urgent care chain, and its lenders have hired a law firm that specializes in bankruptcy and restructuring, according to reports. How the company will repay roughly $3 billion in loans maturing next year has emerged as its biggest challenge.
According to Bloomberg, Aspen Group, the parent company of Aspen Dental, America's largest dental chain, notified lenders in recent weeks that it would no longer pursue the sale of affiliated urgent care chain WellNow. As recently as this past May, WellNow had been expected to fetch up to $300 million, with part of the proceeds earmarked to pay down debt.
Lenders that extended credit to Aspen Group have hired law firm Gibson, Dunn & Crutcher. It is common practice for lenders to bring in restructuring attorneys when a company risks being unable to repay its debt. The move is being read as a signal that the company may struggle to repay roughly $3 billion in loans maturing next year on normal terms.
Aspen Group's Earnings Slump and Falling Loan Prices
Aspen Group is jointly owned by private equity firms Leonard Green & Partners, Ares Management, and American Securities. Beyond the Aspen Dental chain, it holds a portfolio spanning several sectors, including implant specialist ClearChoice, non-surgical aesthetics chain Chapter Aesthetic Studio, and pet care provider Lovet Pet Healthcare.
The trouble is in the numbers. First-quarter EBITDA (earnings before interest, taxes, depreciation, and amortization) came in at $101.1 million, down 6% from a year earlier. In the fourth quarter of last year, the decline had widened to 23%. The company said in its earnings disclosure that the drop reflected losses written off from unpaid patient balances tied to the fallout of a 2023 cyberattack. As this news spread, bonds due in 2027 tied to the company's $1.2 billion loan traded at 89.9% of face value as of the time of reporting, a sign that more investors in international credit markets are questioning the company's ability to repay.
How Dental Chain Ownership Differs Between the U.S. and Korea
Private Equity Deals in U.S. Dental Service Organizations
In the United States, it is not unusual for private equity firms to acquire dental chains, grow them, and sell them again. Under the so-called dental service organization (DSO) model, dentists handle patient care while a separate company manages the business side: advertising, staffing, equipment purchases, and opening new locations. Aspen Dental is regarded as one of the largest DSOs in the United States. Private equity firms buy such chains with borrowed money, grow them, and then sell them for a profit. With Aspen Group now dropping the WellNow sale, one source of funds that was meant to help pay down its debt has disappeared.
Korea's Medical Service Act Ban on Non-Medical Owners
This kind of structure has little room to take hold in Korea. Article 33 of Korea's Medical Service Act limits who may open a medical institution to licensed medical professionals, the national and local governments, medical corporations, and nonprofit corporations. For-profit capital such as private equity funds, and individuals without a medical license, cannot own a dental practice. Korea's Supreme Court weighs four factors: who provided the funding, who bears the profits and losses, who exercises operating authority, and who bears responsibility. If a non-medical professional turns out to be the de facto owner under these tests, the arrangement is ruled an illegal "shadow-owned hospital." Attorney Choi Min-ho of law firm Munjang explained this standard.
As a result, Korea's networked dental chains are limited to receiving support such as advertising and staffing management through management service organizations (MSOs). The kind of scene playing out at Aspen Dental, where private equity firms take center stage and buy and sell hospital chains while carrying billions of dollars in debt, is not something seen in Korea.