Steward loses money on Massachusetts hospital sales; CEO snubs Senate

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Steward Health Care received court approval to sell six of its Massachusetts hospitals for an aggregate price of $243 million during a contentious hearing Wednesday, effectively exiting operations in the state.

The health system will sell St. Anne’s Hospital and Morton Hospital to Rhode Island-based Lifespan Health System for $175 million; St. Elizabeth’s Medical Center and Good Samaritan Medical Center to Boston Medical Center for $140 million; and both Holy Family Hospital campuses to Lawrence General Hospital for $28 million.

However, the sale was far from a win for the bankrupt physician-owned network. Details from an incendiary letter penned by Steward CEO Ralph de la Torre, first published by the Boston Globe on Wednesday, threatened to overshadow the deal closure entirely. The executive said he would not comply with a subpoena to testify before a Senate subcommittee next week.

After purchase price adjustments and closing costs, the transactions will leave Steward approximately $17 million further in the hole, according to Candace Arthur, partner at Weil, Gotshal & Manges, who represented Steward during Wednesday’s sale hearing.

That’s because Apollo Global Management walked away with nearly all of the value. The private equity and asset management firm netted approximately $225 million from the transactions, according to asset purchase agreements.

Apollo now holds the mortgages for Steward’s Massachusetts hospitals, which are owned by Medical Properties Trust and Macquarie Infrastructure Partners. Earlier this summer, the firm held lengthy negotiations with Steward over how to allocate proceeds from sales between hospital operations and real estate.

Arthur told the court that despite the transaction’s “zero-dollar economics,” the debtors stand “fully behind the sale.”

She noted the sales will protect thousands of jobs and prevent hospital closures. The deals were also supported by the Massachusetts government, which has offered Steward a total of $72 million in emergency funding to cover hospital operations during August and September. 

However, the deals did not sail through. Steward’s “first in, last out” or FILO lenders — WhiteHawk Finance, Owl Creek Investments, MidOcean Credit Fund Management and Brigade Capital Management — objected to Steward selling the hospitals at a loss.

The lenders also act as the health system’s debtor-in-possession financiers, which offer Steward funds to operate through restructuring. The lenders have provided about $575 million in funds for Steward throughout the bankruptcy process and gave Steward $25 million as recently as last week, according to testimony from their attorney, Michael Price.

In exchange for funds, Steward promised its hospitals as collateral. Price told the court the Massachusetts deal undercuts the lenders’ ability to secure their loan. A particular sticking point in the deals was the buyers’ ability to assume liabilities in exchange for a lower price — the attorney argued those funds ought to have flowed directly into the estate.

“In sum, there’s $24.1 million being paid for inventory, $17.6 million paid for [fixtures, furniture, and equipment], under the [asset purchase agreement] — that’s undisputed,” Price said. “Zero dollars are coming into the estate. There’s zero consideration being provided to the secured lenders who have liened interest in that collateral.”

“We don’t want this sale to blow up unless it absolutely has to,” Price said. “But what they’re being asked to do is just a bridge too far.”

Still, after a pause to review the final deal terms — which were filed at nearly 4 a.m. Wednesday — U.S. Bankruptcy Judge Christopher Lopez approved the sale, with a few caveats.

Lopez decided to withhold about $17 million dollars from the sales — Steward’s funding shortfall. He will determine at a later date how to allocate those proceeds.



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