Wiki · Precedent2020
Envision Healthcare — 2020 Anesthesia Carve-Out
Envision Healthcare Corp.; KKR (sponsor)
Doctrine
An uncapped §7.03 Investment basket combined with an Unrestricted-Subsidiary mechanic permits a sponsor to drop down material operating assets into a bankruptcy-remote vehicle, raising priming-risk and structural-subordination concerns for original lenders even before any subsequent insolvency.
Signature move
Anesthesia services line dropped into Unrestricted Subsidiary; new debt raised at the dropdown vehicle
Narrative
Envision's sponsor used the §7.03 Investment basket and Unrestricted-Subsidiary mechanic in the 2018 first-lien term loan to drop the company's anesthesia services line — its highest-margin business — into a newly-designated Unrestricted Subsidiary in 2020. The Unrestricted Sub raised approximately $1.1B of new secured debt against the carved-out assets, with proceeds used to retire other obligations.
Original first-lien lenders, looking at the post-dropdown Restricted Group, faced reduced asset coverage and a more complex priority waterfall in any subsequent insolvency. When Envision filed Chapter 11 in 2023, the dropdown structure shaped both the priority disputes and the eventual plan; original lenders ultimately recovered substantially less than face value while the dropdown debt cleared at par.
The transaction was contemporaneous with the broader liability-management wave but is distinctive in the size of the asset moved and the speed with which the structural advantage translated into recovery differences.
Market impact
Reinforced lender insistence on 'investment-basket blockers' for material lines of business and tightened MFN protection on incremental capacity raised at Unrestricted Subs. Envision is now a standard reference in lender-side liability-management discussions alongside J.Crew and Serta.
Active deal match · 1
Live transaction citing this case
Proposed transactions on the platform that the pattern matcher tagged with Envision. Each link opens that deal's term-sheet review.
Cited by2 modules
- ModuleIncremental debt/modules/incremental_debt →
Unrestricted-Sub debt raised after a dropdown sits outside the original incremental cap — but pro-rata recovery is shaped by whether the original agreement treats the dropdown vehicle as outside the collateral package.
- ModuleInvestments/modules/investments →
KKR-led drop-down of anesthesia assets into an Unrestricted Subsidiary, funded via uncapped §7.03 Investment basket. Subsequent bankruptcy raised priming-risk questions for original lenders.
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