“Congratulations on the sale. I hope it makes it through.”
With those words, U.S. Bankruptcy Judge Michael Lynn concluded a brief hearing Monday in a Fort Worth courtroom approving the sale of North Texas Community Hospital in Bridgeport to Wise Regional Health System.
If all goes as planned, the facility will remain open and continue serving patients until the deal is finalized, sometime around the middle of March. At that point, it would emerge from Chapter 11 bankruptcy and become part of the Decatur-based health care system.
But the Bridgeport hospital’s health has taken a turn for the worse since the Nov. 8 bankruptcy filing. Lead attorney Stephen Roberts told the court Monday that the facility is in financial trouble.
“We are running out of cash,” Roberts said. “There is a great deal of concern about whether we are going to be able to stay open until the deal closes. We are in contact with the buyer and bondholders.”
Roberts said revenues in November, December and January dropped, “we believe at least in part due to speculation about the hospital’s future.”
One of the conditions of the agreement with Wise Regional was the hospital remain open until the changeover in ownership. If it should close, Wise Regional would have the option to back out of the deal – but CEO Steve Summers said no one wants to see that happen.
“We all want to keep everything positive,” Summers said Tuesday. “The current thinking is to maintain just like we were, meet the staff and start the integration process. If something happens that’s out of our control, we’ll deal with that. I’m going to assume it’s not going to happen.”
The $20 million proposal that was approved Monday includes $19 million to the NTCH bondholders and a $1 million “debtor-in-possession” loan to help the Bridgeport facility operate until the deal is finalized. The hospital drew $650,000 of that last week.
“If they run out of cash, then we’ll just respond appropriately in the context of the agreement that we have in place,” Summers said. “Our hope is that the public will have confidence and still make use of the facility.”
Speaking at the hearing, NTCH CEO Max Ludeke said the decline in revenue started the month the bankruptcy was filed.
“In the month of November when we filed Chapter 11, we saw an immediate decline in the volume of business,” he said, noting the facility had “net operating losses” in November, December and January.
“It appears to be a consistent trend at this point,” he said. “We hoped that business would come back strong, but January collections were approximately $990,000 – the second-lowest since I’ve been there, down from about $1.5 million in each of the previous three months.”
Ryan Manns, one of the attorneys representing Wise Regional, said the news of NTCH’s financial distress “caught everyone a little off-guard.”
“We only learned about the financial issues recently,” he told the court. “We’re still trying to get our hands around it.”
LOTS OF INTEREST, BUT NO BIDS
Among the facts that emerged in Monday’s hearing was that despite the fact that there was only one bid, health care companies showed a high level of interest in the Bridgeport hospital during the Dec. 11 to Jan. 28 bidding period.
Under questioning from Ian Hammell, attorney for the bond trustee, Ludeke noted that 64 potential bidders were identified and contacted by Navigant Financial Advisors, the firm NTCH hired to market the facility nationwide.
Fifteen parties entered into a confidentiality agreement and gained access to the hospital’s financial information, and eight groups actually came to Bridgeport and toured the facility. Several also met with administrators, medical staff and members of the board.
But in the end, all that effort – and expense – produced no competing bids.
“The final bidder – a party that had shown a high degree of interest – told us on the last day that they would not bid,” Roberts said.
MOVING TOWARD UNITY
Ludeke said that overall, the outcome Monday was positive with the approval of the sale and the opportunity to move forward.
“There’s actually more certainty now about the hospital’s future than at any time since I’ve been here,” he said Tuesday morning. “We are prepared to turn over control. Our number-one priority is the interest of the community.”
Summers said the two groups would begin talking and working together next week on a plan to make the Bridgeport hospital part of the Wise Regional Health System.
“We’re going to start visiting with some of their staff this week and early next week, learning about their operations and getting our managers familiar with that facility,” Summers said. “We’re working with them to make it as smooth a transition as possible and keep everything on a positive note.”
Ludeke said the Bridgeport hospital’s greatest asset is its loyal staff.
“We have 200 employees – about 130 full-time – and we’ve had only two resignations,” he said.
Summers said that staff and community loyalty are vital to the success of the facility going forward.
“We’re going to give everybody an opportunity to be retained as we go into this thing,” he said. “We’re going to talk to anybody who wants to continue to work for us, and do our very best to take on the vast majority of that staff. I can’t say everybody will stay or will want to stay, but we’ll give them that opportunity.
“They’re doing their very best to retain all their people, and we want to do our very best to help them because we’re going to need people in order to provide services.”
He said managers from Wise Regional would begin meeting with various groups of NTCH staff to both learn about procedures and answer whatever questions they may have.
PATH TO FINANCIAL STRESS
North Texas Community Hospital, which has also been known as West 380 Family Care Facility and Doctors’ Hospital, opened in August of 2008. The facility is licensed for 35 beds and offers state-of-the-art imaging, diagnostic and surgery facilities.
But by May 2009, it was already in default on its bonded debt of $59,130,000. The hospital also obtained two lines of credit worth $3 million, one secured by the City of Bridgeport and the other by a physicians’ group, NTCH Guarantors, LLC. Neither is likely to recoup that investment.
Ludeke, who came to the hospital in January of 2010, told the court he found it “in very perilous financial condition” and took steps to quickly address issues like cash flow, billing and financial reporting. He also renegotiated some contracts and terminated others, and although the facility’s cash-flow improved, none of the action was sufficient to allow it to repay its initial indebtedness.
Under questioning by Hammell, he responded in the negative when asked if any of his actions had been sufficient to render the hospital profitable, enable it to the pay the Internal Revenue Service or service the debt.
“The hospital cannot stay open as a stand-alone facility,” he said. “We must enter into a transaction and Wise Regional’s offer is that transaction.”
Hammell told the court the bondholders do not “formally approve” the sale but added that all the bondholders he has been able to contact have expressed support for the sale to Wise Regional.
Summers’ board last week authorized him to contract for services and supplies, employ staff, enter into leases and rentals, modify insurance coverage and “effect other necessary matters” to allow for the continuity of operations at the Bridgeport hospital upon the closing of the transaction.
Wise Regional has already begun publishing the required public notices to facilitate the issuance of $19 million in “replacement bonds” to the holders of NTCH’s debt.