Carbon Health - Chapter 11 Case Summary
Carbon Health Technologies has filed for Chapter 11 bankruptcy amid persistent liquidity constraints and an unsustainable cost structure, pursuing a dual-track sale or debt-for-equity reorganization backed by DIP financing from its prepetition lenders.
Business Description
Headquartered in Sunnyvale, CA, Carbon Health Technologies, Inc. ("CHTI"), along with its Debtor affiliates (collectively, the "Debtors" or the "Company"), is a health technology and management services organization ("MSO") that supports a fully integrated primary and urgent care system.
- The Company provides non-clinical, administrative, and operational support to urgent care and primary care medical service providers (the "Physician Owned Debtors") across approximately 93 locations in eight states.
- The Debtors' integrated system serves over 800,000 patients annually, offering services that include urgent care, primary care, pediatric care, workplace health, and clinical research, all complemented by virtual care access.
Central to the Company's operations is CarbyOS, a proprietary software platform designed to execute a digital strategy that enhances patient engagement and drives operating efficiency. This platform allows the Debtors to tailor services to specific patient needs across locations while maintaining consistent operational standards.
For the trailing twelve months ended November 30, 2025, the Debtors recorded revenues of approximately $154 million, a decrease from approximately $166 million in 2024. This reduction was primarily attributed to the deliberate sale of clinics and the wind-down of certain programs intended to right-size the business.
Corporate History
CHTI was founded in San Francisco in 2015, initially operating as a software platform and mobile application development company focused on medical records, telehealth, doctor-patient messaging, and scheduling. While the Company's original goal was building software for medical practices, it soon pivoted to direct clinical care.
- Expansion into Clinical Care: In 2017, the Debtors launched their first urgent care clinics in the San Francisco Bay Area.
- Network Growth: Through a series of strategic partnerships and geographic expansions, the Company grew its network to approximately 93 clinics, supported by approximately 480 healthcare providers and 1,400 employees.
As of the Petition Date, CHTI is a privately owned Delaware corporation with approximately 41 active subsidiaries and affiliates, 28 of which are Debtors in these Chapter 11 Cases. CHTI also has three foreign subsidiaries: Carbon Health Colombia S.A.S. (Colombia), Carbon Health Türkiye (Turkey), and Avante Limited (United Arab Emirates), none of which are Debtors in these cases.
Shortly prior to the Petition Date, Robert Warshauer was appointed to CHTI's board as an independent director. He serves as the sole member of the strategic transactions committee, which is charged with soliciting, evaluating, negotiating, and making recommendations to the board regarding strategic transactions involving the Debtors.
Operations Overview
The Debtors operate approximately 93 urgent care or primary care clinics across Texas, Washington, California, Colorado, Kansas, Missouri, New Jersey, and Massachusetts. The Company's business model relies on a distinct separation between clinical and administrative functions to comply with laws regulating the corporate practice of medicine.
The MSO Structure
- Physician Ownership: The Physician Owned Debtors are solely owned by Dr. Sujal Mandavia, a board-certified emergency medicine physician who also serves as CHTI’s Chief Medical Officer, with one exception: Djavaherian Medical Practice, PLLC is solely owned by Dr. Caesar Djavaherian.
- Management Services Agreements: Each Physician Owned Debtor is party to a Management Services Agreement with CHTI. Under these agreements, CHTI provides non-clinical services, such as staffing, technology, billing, and fiscal services, in exchange for compensation.
- Clinical Independence: CHTI does not dictate clinical operations or professional judgment. However, Dr. Mandavia has granted CHTI an assignable option over his ownership interest in each Physician Owned Debtor.
Technology Platform
The Debtors utilize the CarbyOS system to streamline access to care, reduce wait times, and simplify scheduling and billing. This technology is designed to create a "patient-first" consumer-grade experience while enhancing provider productivity.
Prepetition Obligations
As of the Petition Date, the Debtors’ capital structure includes secured term loans, specific clinic-level financing, and unsecured obligations.
Secured Term Debt
- Prepetition Loan Facility: The Debtors have an aggregate principal amount of not less than $77 million outstanding under a Loan and Security Agreement with Future Solution Investments LLC as Agent.
- The facility was established in November 2025, with an initial term loan of $10 million. On November 24, 2025, an additional term loan of approximately $61.9 million was advanced to refinance the Debtors' prior secured credit facility with Hercules Capital, Inc. A further $6 million commitment was added in January 2026.
This facility is secured by first-priority liens on substantially all of CHTI's assets, including intellectual property (CarbyOS), accounts, and cash.
- The obligations are further secured by the accounts and proceeds of certain Physician Owned Debtors.
Clinic-Level Secured Debt
Certain Debtors entered into separate credit agreements to fund the development of specific clinics. Notably, the borrowers under these facilities do not operate the clinics or generate revenue directly; rather, the clinics are administered by other Carbon Health entities against which these lenders do not hold security interests.
- John Muir Credit Agreement: Approximately $3.9 million is outstanding under a facility with John Muir Health. This debt is secured by assets of CH East Bay Med. and CH East Bay Primary.
- Stanford Credit Agreement: Approximately $3.8 million is outstanding under a facility with Stanford Health Care. This debt is secured by assets of CH South Bay Med. and CH South Bay Primary.
- Prime Credit Agreement: Approximately $7.6 million is outstanding under a facility with Prime Healthcare Services, Inc.
- The Debtors note that Prime’s lien is likely unperfected as Prime allegedly never recorded a UCC-1 statement.
Unsecured Debt and Equity
- Unsecured Claims: The Debtors estimate approximately $36 million in unsecured obligations, primarily consisting of trade debt and approximately $7 million in unsecured promissory notes.
- Equity: As of the Petition Date, CHTI had 137,595,516 shares of common stock and 83,463,228 shares of preferred stock issued and outstanding.
Events Leading to Bankruptcy
Post-Pandemic Market Shifts
During 2020 and 2021, the Debtors aggressively expanded operations, investing in technology and clinical footprint to meet surging demand for healthcare services, including Covid-related testing and vaccinations. However, beginning in 2022, pandemic-related demand subsided while capital markets for healthcare growth companies tightened significantly.
- The Company faced a material decline in revenue and reduced access to external financing.
- Despite implementing cost-reduction initiatives, including workforce reductions, clinic closures, and discontinuing certain service lines, the Debtors continued to face liquidity constraints as their cost structure remained misaligned with the available capital.
The Judgment Levy
Liquidity pressure was exacerbated in January 2026 when RPT Realty, L.P., a former landlord and judgment creditor, executed a writ of garnishment against CHTI.
- Silicon Valley Bank froze approximately $1.9 million in CHTI’s bank account pursuant to the levy.
- The Debtors and their Prepetition Agent challenged the levy, asserting that the funds constitute prior existing collateral of the Agent and that the transfer is avoidable as a preference.
Restructuring Strategy
Facing these challenges, the Debtors commenced Chapter 11 cases on February 2, 2026, in the U.S. Bankruptcy Court for the Southern District of Texas. The Company has negotiated a dual-track restructuring process with its Prepetition Lenders.
- Plan Track: The Debtors intend to pursue a Chapter 11 plan premised on a debt-for-equity exchange, where Lenders will exchange secured debt for equity in the reorganized Company.
- Sale Track: Concurrently, the Debtors will conduct a marketing process to sell some or all of their assets.
- DIP Financing: To fund operations during the cases, the Debtors have secured postpetition financing from their Prepetition Lenders.