A hearing Tuesday in Fort Worth Federal Bankruptcy Court will establish a 60-day bidding period for anyone out there who would like to take a shot at buying North Texas Community Hospital in Bridgeport.
Wise Regional Health System, based in Decatur, has submitted a $20 million “stalking horse” bid for the facility – but the bankruptcy court will accept other bids until a deadline that will be set Tuesday. If there are no other bids, Wise Regional’s bid will be declared the winner.
If there is a higher bid, an auction would be held.
“Wise Regional has a seat at that table,” NTCH CEO Max Ludeke said this week. “But of course the goal of the court is to get as much money for the bondholders as possible.”
NTCH filed for Chapter 11 bankruptcy protection on Nov. 8 in Fort Worth. The hospital, which opened in August 2008, has been in default on its bonded debt of $59,130,000 since May 2009, never having made a payment.
Wise Regional’s board met Nov. 5 and voted to offer $20 million for the hospital, including $1 million in up-front capital during the interim, and $19 million for the hospital’s assets.
The plan is to keep the facility open and serving the community, blending it into the Wise Regional Health System.
“It’s a good offer from Wise Regional, and we’re very appreciative of them,” Ludeke said. “The biggest thing for us and our people is keeping this facility open. It’s a beautiful facility and honestly, we’re just at the beginning of what it can be.”
Navigant Capital Advisors has been hired to put out information about the bankruptcy in an effort to see if there are any other health-care companies that may be interested in bidding.
“This is common in a bankruptcy, especially when the stalking-horse bid is so far below the amount of the debt,” Ludeke said, noting that Navigant has had four requests for information so far. Wise Regional CEO Steve Summers said he was aware of the marketing effort.
“It’s expected there will be others looking at the data,” he said. “When somebody expresses an interest, they have a right to look at the same information that’s been provided to us. They don’t have to put anything up, but they can look at all that.
“We’re certainly paying attention to that process.”
Summers said Wise Regional was hoping bids would be due by the end of December, but “it looks like they’re going to extend that at least two weeks, into mid-January.” He noted that December is typically not a good time for this kind of process to be under way because of the holidays.
“We’re continuing to look at the value of the hospital,” he said. “We want to be sure that if it came to a bid process, we at least have a plan, going into it.”
Asked if Wise Regional’s board has set a “ceiling” on what they would bid in an auction, Summers said no.
“The only ceiling would be what is prudent and practical from a management perspective,” he said. “That gets to be a little subjective.”
But, he added, due to proximity and the ability to share staffs and services, Wise Regional would seem to have a distinct practical advantage when it comes to continuing to operate the Bridgeport facility.
Ludeke said things are running smoothly at the hospital since the bankruptcy filing.
“In many ways the Chapter 11 has created more certainty than the hospital has had in the previous four years,” he noted. “Our employees and vendors have had a lot of anxiety, just wondering how this was going to end up. Now there’s a process in place to keep the facility open.”
He noted that the $1 million from Wise Regional – which would have to be paid back in the event another bidder gets the hospital – is basically to bear the costs of the bankruptcy filing. The hospital has been cash-flow positive for about a year, but was unlikely to ever be able to overcome the debt burden from its startup, given the economy and the uncertainty of the health-care climate in the U.S.
Ludeke said a settlement with the IRS is included in the bankruptcy petition and the proposed agreement with Wise Regional Health System. Under those terms, the hospital would keep its accounts receivable of about $3.5 million.
“The IRS has accepted a lien on those receivables as payment of the hospital’s obligation,” he said. “Those funds will go toward some professional fees, the IRS charges and some other obligations.”
He said the bankruptcy filing has improved the hospital’s financial picture slightly due to the fact that vendors can no longer seek payment on previously incurred debt.
“On many of our old vendor accounts, we were not only collect-on-delivery, but they were requiring us to pay something on the past-due balance as well,” he said. “Since those balances were included in the bankruptcy filing, they’re no longer allowed to require that.”
If Wise Regional’s $19 million bid ends up being the successful bid, that amount would go to the bondholders – giving them just over 32 cents on the dollar for their investment. Roughly 2,000 unsecured creditors, including the city of Bridgeport which is owed nearly $3.4 million, will get nothing.
The top 20 unsecured creditors are owed a total of nearly $10 million.
Ludeke said the hospital’s bonds were purchased mostly by large bond funds, with only a handful of individual investors purchasing bonds.
He praised the hospital’s employees for their loyalty and the quality of care they provide. It has never been an “us-against-the-world” thing, he said, as much as “just the knowledge that this is important.
“This hospital is important to this community,” he added. “These jobs, this facility is an asset to this community. I know people’s lives have been positively affected since we’ve been here. This hospital has saved lives. The quality of the physicians and the staff, even in severe financial distress, this kind of community spirit, the commitment from doctors and the quality of care that’s offered… it’s worth a lot.”