There is still no trace of the deals to transfer five Steward Health Care hospitals on six campuses in Massachusetts that Gov. Maura Healey announced last week, but other filings in U.S. Bankruptcy Court show that things are getting a bit heated between the bankrupt company and its real estate partners.
Healey said Friday that there were agreements in principle for Lawrence General Hospital to buy the Holy Family Hospital facilities in Methuen and Haverhill, for Lifespan to take over Morton Hospital in Taunton and Saint Anne’s Hospital in Fall River, and for Boston Medical Center to buy Good Samaritan Medical Center in Brockton and St. Elizabeth's Medical Center in Brighton (after the state seizes the property by eminent domain), so long as the deals are finalized and approved in U.S. Bankruptcy Court.
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Having already been delayed multiple times, a hearing on the sale of the Massachusetts hospitals is currently scheduled for 2 p.m. Thursday. But Steward has still not acknowledged Healey's announcement or given any indication that those deals are being finalized, not in any kind of press statement or in court filings. Recent postponements have been announced a bit less than 48 hours ahead of time, and Steward on Tuesday afternoon announced in a filing that there will be an emergency hearing related to the sale of one of its Florida hospitals at the same time that the sale hearing is supposed to be held for the Massachusetts hospitals.
A Steward lawyer said Friday the company hoped to be "reporting a favorable result on signing the asset purchase agreements for Massachusetts on Monday." While there has been no sign of those agreements on the bankruptcy docket, recent filings have revealed that there is a lot else going on as the proceedings build to an inflection point.
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The emergency hearing scheduled for Thursday revolves around a dispute related to Steward having last week designated Orlando Health as the "stalking horse" bidder for Melbourne Regional Medical Center, Rockledge Regional Medical Center and Sebastian River Medical Center on Florida's Space Coast.
On Monday, Steward hospital landlord Medical Properties Trust filed an objection to that designation and an emergency cross-motion asking the judge overseeing the case to force Steward to comply with the court-approved procedures for its asset sell-off. MPT says it "has suffered and will continue to suffer immediate harm" because Steward "stopped complying" with the so-called global bidding procedures.
And the company also objected to the structure of the deal for Steward to sell the Florida hospitals as "an abuse of the bankruptcy process and an affront to MPT’s property rights."
"In particular, despite the specific requirement in the Global Bidding Procedures that qualified bids must include separate and independent terms for treatment of MPT’s real estate, the Debtors have caused bidders — including Orlando Health in connection with the Space Coast Hospitals — to submit 'enterprise value' bids for hospitals, namely bids that do not distinguish Steward’s property (hospital operations) from MPT’s property (real estate)," the company wrote.
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MPT also asked the judge to deny certain "bid protections" that Steward is seeking for its offer from Orlando Health because, the landlord said, Steward is proposing to sell the hospital operations for a yet-undetermined price that will be calculated by subtracting the price the buyer has to pay for MPT’s real estate from the total purchase price.
"But, in an Orwellian twist, the real estate price is not what the real estate owner (MPT) agrees to accept; instead, absent agreement or a court order, the real estate price will be set by the Buyer, provided that it does not exceed a maximum price agreed to by the Debtors (who, under the proposed APA, stand to benefit dollar-for-dollar if the real estate is sold for less)," the company said. "The Buyer’s 'allocation' will then, according to a bracketed sentence in the proposed sale order, become 'final and binding' on MPT."
Steward filed a complaint against MPT on Monday, launching an adversary proceeding that alleges the landlord has interfered with Steward's efforts to sell off its hospitals.
"Indeed, the Debtors’ sales process has been challenged by the self-interested involvement and interference of MPT, who has attempted to undermine the Debtors' sales process by, among other things, (i) communicating directly with the Debtors' bidders without the Debtors’ consent …; (ii) directing bidders, many of which have prior and ongoing relationships with MPT or otherwise seek to enter into revised leases with MPT as their future landlord, to allocate all of the value of their bids to MPT’s real estate; and (iii) attempting to pressure the Debtors, who have limited liquidity runway, to accede to its demands that all value be siphoned to MPT, leaving the estates bare and risking the Debtors’ ability to maintain and sell their operations in a manner that maximizes value and safeguards patient health and safety," Steward claimed in its filing.
The company added, "MPT’s sales process interference and brinksmanship jeopardizes the future of dozens of hospitals, tens of thousands of jobs, and the safety of patients—not to mention wrongfully taking value from the estate."
MPT responded indirectly in its objection filing, saying that Steward "can be expected to lash out at MPT and try to blame MPT for the poor progress of these cases and the delays in the sale process."
"That narrative is not just irrelevant as a legal matter — it does not change the fact that the Debtors are tenants whose rights are determined by Section 365 of the Bankruptcy Code — but it is also fundamentally inaccurate," MPT said. "In reality, it is the Debtors who have prevented sales from going forward, not to protect public health or the like but to attempt to force MPT to transfer real-estate value to the Debtors and their lenders as the price of allowing sales to go forward that are necessary to avoid closures."
The relationship between Steward and its so-called FILO (first in, last out) lenders also appears to be in choppy waters this week. That group this week filed an objection to "any proposed hospital sale for which the Debtors do not receive the FILO Secured Parties’ consent."
The lenders said they have extended $575 million in loans to Steward, secured by collateral including permits for operating Steward's hospitals, contracts with vendors and other third parties that help facilitate hospital operations, and "all of the inventory and furniture, fixtures, and equipment contained in each of the" Steward hospitals -- including hospital beds, imaging equipment, information technology systems, and equipment for operating rooms and emergency departments. None of that collateral is owned by MPT, the lenders note.
"Given that the assets that comprise the FILO Collateral are required to operate the Debtors' hospitals, no purchaser of a going concern hospital would be willing to buy or lease the real estate underlying the hospital from MPT without acquiring these assets. As such, these assets have significant value to any such purchaser," the FILO lenders said, adding that negotiations around their concerns have been ongoing.
