BOSTON — A U.S. Bankruptcy Court judge approved the sale of six Steward Health Care hospitals here Wednesday, the most significant milestone yet in a saga that has commanded state government’s time, attention and money, and will reshape the health care landscape in eastern Massachusetts.
Judge Christopher Lopez made the decision after hearing arguments Wednesday morning, including around an objection that key lenders to the bankrupt company filed to the proposed sales. The judge said he would approve the sales, though he still wants Steward and the lenders to iron out differences around how a certain $17 million in proceeds is divvied up among creditors.
“This sale needs to happen, and it will happen,” Lopez said from the bench in Houston, Texas. He added, “What I am saying is you’re going to be authorized to sell it, but I’m going to withhold $17 million bucks, which is the funding shortfall. I’m going to withhold it from the other entity. They can get paid all the other money, but we’re going to take $17 million bucks, and I’m going to figure out who gets it.”
The judge said his decision to hold aside some of the sale proceeds to still be allocated “should not hold up these sales” and that he would have a ruling well before the targeted transaction close date of Sept. 30.
Approved was Steward’s plan to sell St. Anne’s Hospital in Fall River and Morton Hospital in Taunton to Lifespan for $175 million; the Holy Family Hospital facilities in Methuen and Haverhill to Lawrence General Hospital for $28 million; and Good Samaritan Medical Center and St. Elizabeth’s Medical Center to Boston Medical Center for as much as $140 million. Steward closed its other two hospitals here, Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer, on Saturday.
The lawyer representing Massachusetts state government in Steward’s bankruptcy case urged Lopez on Wednesday morning to approve the sale of the six hospital sites and hinted at “the support that will be required in the future for these hospitals” from state government.
“The commonwealth has watched and participated in this process for months and months -- days and days of mediation, days and days of effort to bring together bidders and the estate in order to consummate transactions that will preserve jobs, will preserve hospitals, and first and foremost, will preserve health care in communities that require them,” Andrew Troop, the state’s lawyer from the New York office of Pillsbury Winthrop Shaw Pittman, said. “This is not to say that there weren’t tough decisions made in this case with respect to other transactions. But here, there are willing buyers for assets that are, however described, challenged.”
Troop said Massachusetts “has tried to do its fair share” to get the deals to the point of seeking court approval, including advancing Steward $30 million to fund operations in August and, with Lopez’s approval granted Wednesday, providing the company another $42 million this week to keep the hospitals afloat until the end of September, when the sales are supposed to close.
“The commonwealth has also thought very hard about the delivery of health care in Massachusetts, and the support that will be required in the future for these hospitals to hopefully turn themselves around and become the pillars of the community that they once were,” he said.
The Healey administration has said the state will provide additional financial support for Steward, but has so far declined to say how much more the state will contribute. The financial aid package to help ease the transitions to new owners could reportedly swell to $700 million over three years.
The Executive Office of Health and Human Services did not respond to questions Wednesday about the details of the financing plan, which Secretary Kate Walsh previously said would be made available when the deals were finalized.
Candace Arthur, one of Steward’s lawyers from the firm Weil, Gotshal & Manges, laid out for the court just how complicated of a process it was to reach the deals to sell Steward’s hospitals in Massachusetts. She described “challenging issues” around value allocation, alternative source financing, navigating regulatory regimes and negotiating with multiple parties at the table.
“None of the sales are just two-party binary discussions. Each sale involved the debtors, the buyer, the debtor’s secured lenders, the debtor’s landlord under the master lease governing the real property that the hospitals are situated, the mortgagee of the underlying real property, the creditors committee, and the Commonwealth of Massachusetts. And this is in connection with negotiating the transaction terms, and doesn’t include the concurrent negotiations that the debtors engaged in with unions and contract counterparties,” she said.
Arthur added, “So truly, your honor, each transaction before you today is the highest or best that the debtors are able to achieve.”
But the deals for the Massachusetts hospitals, she said, are also Steward’s “only option available after a thorough search.”
Court documents filed ahead of the sale hearing revealed just how limited the bidding for the Massachusetts hospitals was this summer. No hospital got more than three bids total, and one of the bids was a proposal to buy all of Steward’s hospitals in Massachusetts for a total of $1.
The Official Committee of Unsecured Creditors, appointed to represent some of the people and companies with the largest unsecured claims during the bankruptcy proceedings, supported the deals. Brad Kahn, from the firm Akin Gump Strauss Hauer & Feld, said the creditors’ goal all along has been “to keep the hospitals operating and transition them to new operators, safely and effectively.”
“By hook or by crook, we are now on the precipice of achieving that goal for six of the debtors’ eight Massachusetts hospitals,” he said. “Did the sales go exactly as we had all hoped they would when we started this case? No. But these hospitals need to be transitioned to their new operators as quickly and safely as possible.”
Kahn added, “The committee also believes that the estates must be fairly compensated in these sales, and it sounds like the court is going to help the parties figure out what that means in the context of the FILO lenders’ objection today.”
Wednesday’s hearing got into the meat of an objection filed by the “first in, last out,” or FILO, lenders that have pumped hundreds of millions of dollars into Steward as the company headed for bankruptcy. Those lenders said they “cannot possibly consent to the proposed sales of the Massachusetts Hospitals in their current form, and they do not.” That objection is the basis for Lopez’s decision to withhold $17 million for potential reallocation.
“The Debtors’ sale process has resulted in bids for the Massachusetts Hospitals for an aggregate purchase price of $343 million, subject to certain adjustments ... However, this figure is misleading as the entirety of the Purchase Price will be allocated towards the real property and therefore flow to benefit the purported landlord (MPT and Macquarie) and more specifically will flow to the purported landlord’s secured lender,” the FILO lenders wrote in the objection.
Of the $175 million purchase price Lifespan has agreed to pay for Morton and St. Anne’s, $166.8 million would go towards the transfer of the underlying real estate from an affiliate of Apollo Global Management while roughly $8.2 million would be allocated to Steward’s hospital operation, according to court papers.
Approximately $9.4 million of the $140 million that BMC agreed to pay for Good Samaritan and St. Elizabeth’s is for the hospital operations, while all of the $28 million that Lawrence General agreed to pay for the Holy Family hospitals would be “paid for the acquisition of the underlying real property from an affiliate of Apollo Global Management.”
1199SEIU United Healthcare Workers East, which said earlier this year that 5,000 of its members provide care through the Steward systems, said the sale approval marked “a bright new day for healthcare workers and our patients. ”With Steward finally on its way out of Massachusetts, the critical work of transitioning the hospitals to their new owners can begin. Throughout this complicated process, patient safety and workers’ rights need to be protected, and new investments will be needed to help stabilize our fragile hospitals and their vital workforces,” union Executive Vice President Tim Foley said. “Healthcare workers are the heart and soul of our hospitals, and Steward workers stuck around through months of uncertainty because of our strong commitment to our patients.”
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