Local health-care company Meridian Behavioral Health filed for Chapter 11 bankruptcy last week in what the company calls a “defensive” move that was made because of a loan agreement it entered into with its struggling sister company.

According to bankruptcy documents, which were filed last week in U.S. Bankruptcy Court in the Southern District of New York, New Brighton-based Meridian and its sister company MK Network, LLC, had been in negotiations to refinance a joint loan with their lender, Fifth Street Finance Corporation.

The documents say that Fifth Street “abruptly” issued a notice of default to Meridian and MK and instructed their banks not to honor any checks or process any transfers from their accounts-prompting them to file for bankruptcy to protect the businesses.

“Accordingly, [Meridian and MK] took the unfortunate but necessary step of filing their voluntary petitions to protect their business and preserve the value of their assets,” the documents said.

The two companies owe a combined $20.8 million to Fifth Street-MK owes $15.97 million while Meridian owes $4.8 million, according to court documents.

Meridian, which employs about 220 people, is fully operational and has “ample liquidity” and have been current with its loan payments, However, MK has missed monthly interest payments to Fifth Street since September and is “in need of financial restructuring due to a general decline in their business over the past several quarters,” the bankruptcy documents said.

“Because we were in the same lending agreement with MK, we had to do this defensively to maintain operations and not threaten employees and patients,” Meridian spokeswoman Lisa Michie told Twin Cities Business Monday afternoon.

Michie said that it was “business as usual” at Meridian's 15 facilities and the company has meetings set up in the next two weeks with new lenders to arrange financing separately from MK.

In its bankruptcy petition, MK reported assets of $1 million to $10 million and liabilities of $10 million to $50 million. Meridian indicated in its bankruptcy petition that its assets and liabilities were both in the range of $1 million to $10 million.

Meridian claims to be the largest for-profit behavioral health care company in Minnesota. It offers outpatient, jail-based, residential mental health and substance-abuse services-including some that are specifically for pregnant women.