With six attorneys in the courtroom and four more on the phone, Federal Bankruptcy Judge Michael Lynn heard a brief explanation Wednesday morning of the complex maneuvering that should keep North Texas Community Hospital up and running until it hands the keys to Wise Regional Health System.
That “closing” is scheduled for Tuesday, March 26.
Susquehanna International Group LLP, headquartered in Bala Cynwyd, Penn., agreed last Friday to provide up to $1.9 million in cash to allow the hospital to keep running and pay its bills.
In return, Susquehanna gets a bigger share of the bonds Wise Regional is issuing to purchase the assets of the Bridgeport hospital. For Wise Regional, the bottom line does not change – $1 million in cash and $19 million in bonds.
NTCH attorney Stephen Roberts said $250,000 should be advanced within a few days, with the bulk of the funds coming after the March 26 closing.
“We are going to get the funding which will enable us to pay off all the vendors, so the IRS gets paid out of the accounts receivable,” Roberts said by phone on Friday. “The purchase price is not changing, but the bondholders coming up with the money to help us close will get a bigger share of the bonds.”
NTCH, which filed for Chapter 11 bankruptcy Nov. 8, 2012, issued an urgent plea for cash Feb. 4 after three straight months of declining revenues. On Feb. 25, CEO Max Ludeke and board chairman Dr. Jimmy Horner went to a Wise Regional board meeting to ask that the Decatur-based health system restructure the deal to provide more cash.
Wise Regional was unable to act on that request, prompting the deal with Susquehanna.
It was touch-and-go until then.
“We have had a contingency plan to close down if necessary,” Roberts said in court Wednesday. “The impact on patients would be minimal, but if we had to close down it would be a much less attractive deal for Wise Regional.”
Roberts noted that Wise Regional’s contract allowed them to back out of the purchase if the hospital closed.
“They would have the right to walk,” he said, “but they have chosen not to.”
The big concern was the IRS, which had agreed to take the hospital’s accounts receivable in payment for funds owed to it. However, the value of those receivables dropped from around $3 million to around $2.3 million after actual revenue did not measure up to what had been projected.
“They changed procedures, changed codes, and what they actually got reimbursed was less than what they expected to get reimbursed,” Roberts said Friday. “Medicare did not pay them the amount they had expected.”
He said in court Wednesday that the IRS was “very concerned about the reduction in accounts receivable.”
This week’s deal should alleviate that concern.
“This has always been a difficult deal to close, even since last July when we started these talks,” Roberts told the judge. “There’s just not much cash. We got the $1 million loan from Wise Regional, but by the time we got to approval in February that was already running very thin.”
Now it’s just a matter of operating until March 26, when ownership of the hospital is scheduled to change.
“We’re moving forward to have everything wrapped up at closing,” Roberts said in court. That includes the return of equipment, payment of administrative receivables, protection of patient records and a host of other details.
“Wise has already announced that they will essentially shrink services, do some remodeling, reconfigure a few areas, then bring the hospital back up,” Roberts told the court.
Through it all, he stressed, patient care has not suffered.
“We have filed daily reports to key people on patients, services, cash, as well as reports to the state on patient care,” he said.
He pointed out that NTCH is “in touch with the state almost daily” and a representative of the Texas State Department of Health Services – also on the phone – voiced no objection.
“It’s our understanding that the debtor has secured funding to bridge the gap between now and closing,” Casey Roy of the Attorney General’s office said. “If that’s the case, the state is OK with the status quo on patient care.”
Vince Marriot, representing Susquehanna, monitored the hearing from Phildelphia.
“The exact structure of the deal is still under discussion,” he said. “We anticipate a term sheet to be delivered today, and it will be documented by next week’s hearing.”
Another status conference has been set for 11:30 a.m. Thursday, March 21, in U.S. Bankruptcy Court in Fort Worth.
Roberts also touched on some of the other issues being worked on.
“The hospital is connected to a medical office building which is not included in this deal,” Roberts told the judge. “They are conjoined twins. The heating and air conditioning systems are shared, and we’ve learned that the stairways – the office building’s emergency exits – are on their property. So we’re crafting a shared services agreement, easements have been granted – we’re working on that.”
With the funding crisis apparently resolved, there’s time to hammer out those details prior to signing the final documents.
Meredith Kippes, attorney for the U.S. Bankruptcy Trustee; Trey Monsour, attorney for the bondholders; and Ryan Manns, attorney for Wise Regional, were also at Wednesday’s hearing in Fort Worth.
“We’re nearly done on the shared services agreement,” Manns said. “We’re going to continue to work with counsel to close on March 26.”