Financial Health of Private Equity-Backed Ophthalmology and Optometry Groups: an Analysis of Debt Valuations

Abstract

AbstractPurposeTo identify debt valuations of ophthalmology and optometry private equity-backed group (OPEG) practices, which are a proxy for financial performance.DesignRetrospective cohort study using the 2021 Business Development Company (BDC) Report and BDC quarterly/annual filings.ParticipantsBDCs holding one or more ophthalmology/optometry group debt instruments.MethodsThe 2021 BDC Report was used to identify all BDCs actively filing annual reports (Form 10-Ks) and quarterly reports (Form 10-Qs) in 2021. The public filings of BDCs lending to OPEGs were searched from inception of an OPEG’s debt instrument in a BDC’s portfolio, and the amortized cost and fair value of each debt instrument were tabulated. A panel linear regression was used to evaluate temporal changes in debt valuations.Main Outcome MeasuresTrends in total debt held by OPEGs, trends in valuation (premium or discount) of OPEGs.ResultsA total of 2997 practice locations affiliated with 14 unique OPEGs and 17 BDCs were identified in 2021. Debt valuations of OPEGs decreased 0.46% per quarter over the study period (95% CI: −0.88 to −0.03, P = 0.036). In the COVID-19 pre-vaccine period (March 2020 – December 2020), there was an excess (additional) 4.93% decrease in debt valuations (95% CI: − 8.63 to −1.24, P = 0.010) when compared to prepandemic debt valuations (March 2017 – December 2019). Effects of COVID-19 on valuations stabilized during the pandemic post-vaccine period (February 2021 – March 2022), with no change in excess debt valuation compared to pre-pandemic baseline (0.60, 95% CI: −4.59 to 5.78, P = 0.822). There was an increase in practices that reported average discounted debt valuations from 20 practices (1.6%) associated with 1 OPEG to 1213 practices (40.5%) (including 100% of newly acquired practices) associated with 9 OPEGs, despite stabilization of COVID-19 related excess (additional) debt.ConclusionsValuations of OPEG debt have declined significantly post-PE investment from March 2017 to March 2022. An excess (additional) decline in valuations was observed during the COVID pre-vaccine period, with trends in excess debt valuations returning to baseline pre-pandemic levels by December 2021. Declining and discounted valuations of debt raise concerns about the financial viability of many PE-backed practices.