Patriot National Inc., which provides technology, outsourcing and underwriting services to the insurance industry, has announced a plan of reorganization as part of a restructuring support agreement (RSA) with its lenders, Cerberus Business Finance, LLC and its affiliates, and TCW Asset Management Co. LLC., which have agreed to acquire the financially troubled firm.
Under the transaction, announced Nov. 28, Patriot National will be acquired by certain funds and accounts managed by the investment management firms, and its direct and indirect U.S.-based subsidiaries will file voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code.
Cerberus and TCW will convert a portion of their claims under the financing agreement in consideration for 100 percent of the new equity to be issued in Patriot National and the subsidiaries under the plan. All existing equity interests in Patriot National and its subsidiaries will be extinguished, and Patriot National will no longer have any affiliation with its founder and former CEO Steven Mariano, who resigned earlier this year.
The company, headquartered in Fort Lauderdale, Fla., expects the reorganization, which is subject to regulatory approval, will be completed early in the second quarter of 2018.
Patriot National said in a statement that it will “continue to operate its business in the ordinary course and the Chapter 11 filing is not expected to have a meaningful impact on its day-to-day operations.”
Patriot National provides general agency services, technology outsourcing, software, specialty underwriting and policyholder services, claims administration services and self-funded health plans to its insurance carrier clients, employers and other clients. While it does not bear underwriting risk, it works with insurance carriers to design workers’ compensation and other multi-line programs that are marketed through more than 4,000 independent retail agencies.
In its announcement, Patriot National said it intends to continue to provide service to all of its carrier customers in accordance with the terms of current agreements. Furthermore, it anticipates all commissions due to brokers who commit to continue their business relationships with Patriot National will be paid “in the ordinary course of business or in full under the [reorganization] Plan,” the statement says.
The move is not unexpected after a tumultuous year for the company that came to a head in mid-November with the announcement that its largest workers’ compensation customer, Guaranteed Insurance Co. (GIC), would be placed in receivership by Florida regulators. The companies were mutually owned by Mariano, who resigned from Patriot National last summer. GIC held an estimated 10 percent of Patriot National’s stock and historically accounted for 60 to 70 percent of its business.
GIC provided alternative market workers’ compensation insurance in 31 states, with 8,600 active polices in force as of Nov. 13, including 1,250 in Florida. It’s liquidation was approved by Florida regulators on Monday. Under the liquidation order, all GIC policies are cancelled effective Dec. 27, unless otherwise terminated prior to that date. The Florida Office of Insurance Regulation said it was working on transitioning policies and ensuring the continued payment of claims to injured workers.
Another subsidiary, Patriot Underwriters Inc., is a national program administrator that underwrites and services workers’ compensation insurance for insurance companies.
Shortly after Florida regulators took over GIC, Patriot National filed a forbearance agreement with the Securities and Exchange Commission that said it would be laying off 250 employees, representing approximately one-third of its workforce.
The South Florida Business Journal reported that in November 2016, Cerberus established a $30 million revolving credit line as well as a $250 million term loan with Patriot National and the company was currently in default of its credit agreement. Under the forbearance agreement, Patriot National was to deliver its financial statements to Cerberus by Dec. 3, and as required by the agreement had engaged a chief restructuring officer.
Another affiliate of Patriot National, Ashmere Insurance Co., announced last week it would be acquired by New York-based Bedrock Insurance Group Holdings.
Patriot National representatives did not respond to a request for comment on the bankruptcy and restructuring announcement. In a press release, John Rearer, CEO of Patriot National, said the move “marks a significant milestone for Patriot National as we look to reduce our debt, significantly improve our liquidity and financial condition, and improve our ability to service our loyal customers.”
Rearer said in recapitalizing through a Chapter 11 process, the firm is “partnering with strong financial and operational partners who can provide us with the resources and expertise to move forward.”
Patriot National Nov. 28, 2017 8-K SEC Filing