Bright Health Group has secured a $60 million credit agreement that enables the struggling startup to survive while it completes a sale of its final insurance operation to Molina Healthcare, the company wrote in a filing to the Securities and Exchange Commission Monday.
The soon-to-be former health insurance company solidified a rotating credit agreement with existing lenders and original investor New Enterprise Associates on Friday that extends the contract until February or until all loans are repaid, and lifts a requirement that Bright Health renegotiate with lenders every three months, according to the Securities and Exchange Commission filing.
The cash infusion should be enough to sustain Bright Health as it finalizes a $600 million deal to sell its California Medicare Advantage business to Molina, the company said in a news release Monday. Bright Health declined to comment. Molina and New Enterprise Associates did not respond to interview requests.
Bright Health shares opened at $16 on the New York Stock Exchange on Monday, up 5.8% from Friday’s close. Bright Health completed a reverse stock split in May to raise its stock price above the $1 minimum required to remain on the exchange.
The company has been in jeopardy since it overdrew its $350 million credit facility several months ago.
As part of the new credit agreement, Bright Health will allow New Enterprise Associates and others to purchase 1.7 million shares, valued at $25 million, at 1 cent per share, the company wrote in the regulatory filing. Bright Health's board of directors advanced the arrangement without shareholders' OK because “delaying the debt financing transaction (which includes the issuance of warrants) until shareholder approval would jeopardize the financial viability of the company,” the company said in the news release. The New York Stock Exchange approved the action, according to Bright Health.
Bright Health must hold the state-required reserves in its California insurance subsidiaries and receive lenders' approval before taking on certain types of debt or selling its remaining assets, the company notified the Securities and Exchange Commission. Bright Health has agreed to pay lenders 15% annual interest. If the company violates these terms, or if the deal with Molina does not go through, the creditors can accelerate the timeline under which Bright Health must cover its debts.
New Enterprise Associates, a venture capital firm, and Bessemer Venture Partners jointly invested $80 million during a Series A round in 2016 and co-led a $750 million investment with Cigna Ventures in 2021.
The cash infusion comes after Bright Health reported a $12.8 million shortfall in a California Medicare Advantage plan during the second quarter. Bright Health's Brand New Day subsidiary does not hold enough funds to satisfy its commitments to the state, a California Department of Managed Health Care spokesperson wrote in an email.
“The DMHC continues to monitor the financial viability of the plan,” the spokesperson wrote. “The plan is working with the department to address the department’s concerns about the plan’s financial viability and operational changes.”
Bright Health has not yet submitted a quarterly statement for its other California Medicare Advantage product, Central Health Plan, and has until Aug. 15 to submit updated financial information to the state.
In 2021, the California Department of Managed Health Care required Brand New Day to hold more capital than required of other Medicare Advantage carriers for three years as a condition of the insurer expanding its geographic footprint. Brand New Day must hold 200% tangible net equity while most carriers must hold 150%, according to the California regulator. Brand New Day ended the second quarter with 149% of the required reserves, or $37.8 million, the Department of Managed Health Care spokesperson wrote in an email.
Brand New Day's net losses more than doubled year-over-year during the second quarter to $10.1 million, and more than tripled since the first quarter. Brand New Day recorded a 5.8% increase in revenues on 75,537 Medicare Advantage enrollees in the second quarter. The Bright Health subsidiary complied with a California order to secure a new fidelity bond by July 12, the Department of Managed Health Care spokesperson wrote.
Bright Health Group will report second-quarter earnings on Wednesday.