Warburg’s CCS Medical Lands In Bankruptcy

Despite its position in what is largely viewed as a recession-proof industry, CCS Medical Inc. has fallen victim to the economic downturn.

On July 9, the Warburg Pincus-backed provider of diabetes test strips, insulin pumps and other medical supplies voluntarily filed for Chapter 11 bankruptcy.

The Clearwater, Fla.-based company, which was acquired by Warburg Pincus nearly four years ago for about $630 million, said in a prepared statement earlier this month that it reached a deal with certain holders of its first lien loan that will allow it to reduce its debt to about $200 million from its current $522 million. It also said it’s received a commitment for $10 million in debtor-in-possession financing from a group of existing first lien lenders that it can use to support the business as it restructures.

The bankruptcy may be an especially hard blow to New York-based Warburg Pincus, given that the firm had already attempted to exit the company via an initial public offering. CCS Medical filed for an IPO in August 2007 to sell 10 million common shares at a price between $14 and $16 per share. A deal in that range would have produced a market capitalization of up to $607 million. But the company withdrew its IPO registration in June 2008, citing “market conditions.” Lehman Brothers and Goldman Sachs were serving as co-lead underwriters for the deal.

Warburg Pincus didn’t return a request for comment.

Court documents filed with the bankruptcy court in the District of Delaware showed the company had assets of between $100 million to $500 million and liabilities of between $500 million and $1 billion at the time of its filing, according to Reuters.

Warburg Pincus formed CCS Medical, as it’s currently structured, in 2005. In the fall of that year, the firm acquired two companies: the original CCS Medical Inc. for approximately $360 million and MP TotalCare for about $270 million from buyout shops KRG Capital Partners and Charterhouse Group, respectively. Warburg Pincus then merged the two companies—both of which specialized in direct-to-consumer distribution of diabetes treatment equipment and other medical provisions, such as wound care supplies, urological products, incontinence supplies and respiratory medications—into a single company under the CCS Medical banner. As standalones, both companies had been experiencing strong growth.

In 2008, however, heavily-leveraged CCS Medical lost a major market agreement for its Sanvita glucometer, a device that measures the amount sugar in a person’s blood. That loss, combined with other competitive pressures and Medicare reimbursement rate decreases led to severe shortfalls to CCS Medical’s consolidated revenue and EBITDA plans, according to ratings agency Standard & Poor’s.

CCS Medical is an investment from Warburg Pincus Private Equity IX LP, an $8 billion fund that closed in August 2005.