Haverhill Retirement System v. Richard A. Kerley, et al. and The Providence Service Corporation
Status: Ongoing Case
We serve as co-lead counsel in derivative action relating to a recent acquisition by Providence Service Corporation, alleging an improper financing arrangement by the Providence chairman.
In October 2014, Providence acquired healthcare provider CCHN Group Holdings, Inc. for approximately $400 million. The bulk of the purchase price was funded through cash on-hand and Providence’s credit facility bearing 3-4 percent interest. The remainder of the purchase price, however, as alleged by shareholders, was funded through an unfair financing arrangement, led by the chairman of Providence’s board of directors, Christopher Shackelton. Shackelton is also the founder and managing partner of hedge fund Coliseum Capital Management, which is Providence’s largest stockholder.
The lopsided arrangement included (a) a $65.5 million subordinated note with Shackelton’s hedge fund, Coliseum, bearing interest at between 14 percent and 18.5 percent; and (b) a rights offering of preferred stock “backstopped” by Coliseum, the proceeds of which were used to pay off the subordinated note. As a result of this financing arrangement, Coliseum has received and will receive millions of dollars in interest payments from Providence as well as significantly greater voting power in the company.