Hospitals' fate in creditors' hands
BY Greg Wiles
Advertiser Staff Writer
Three competing reorganization plans will be put before creditors of Hawaii Medical Center in an effort to determine which one will best help the former St. Francis hospitals pay off past debts.
U.S. Bankruptcy Court Judge Robert Faris yesterday approved the sending of the plans to creditors, along with setting an early April date for discussing creditor preferences and confirming one of the plans. Two of the proposals contemplate ownership changes for the hospitals in Liliha and 'Ewa, while a third includes the option of selling one of the hospitals.
The court action marked a significant step in the bankruptcy, which was filed in August 2008 and has included a number of disputes between creditors and the hospitals' current and past owners. One of these resulted in each of the groups being allowed to file their own prescription for how best to cure the debts and allow the two hospitals to exit bankruptcy.
"It's good we finally got to this point," said Salim Hasham, chief operations and restructuring officer for Hawaii Medical Center.
"It's been a long year and a half."
Hawaii Medical Center bought the financially troubled St. Francis hospitals in January 2007 but was unable to turn the operations around and sought bankruptcy after losses increased. The owner is made up of Cardiovascular Hospitals of America and 132 local physicians, who had relied on $46.3 million in seller financing from St. Francis Healthcare System of Hawaii to buy the operations.
The three reorganization plans have been put forth by Hawaii Medical Center as debtor in possession of the property, St. Francis and the committee of unsecured creditors. In court yesterday, the group agreed that each believed their plan was superior to the others.
In brief, the plans are:
• St. Francis' plan calls for taking back the hospitals and finding new managers to oversee the operations. Unsecured creditors would receive 10-year promissory notes and receive interest payments at 2 percent per year with a payoff at maturity ranging from 20 percent to 160 percent of the note's face value.
• The unsecured creditors committee plan would strip Hawaii Medical Center of its ownership and turn over the hospitals to a nonprofit corporation. The plan calls for full payment of the unsecured claims over nine years with 2.5 percent interest.
• Hawaii Medical Center's plan includes the possibility of selling the 240-bed hospital in Liliha. Unsecured creditors would receive up to 70 percent of claims over seven years at 4 percent interest. It says the distribution might be lower if debtors are unable to reduce the secured debt owed to St. Francis to about $42 million.
Bruce Bennett, an attorney for St. Francis, said he believed the two other plans can't satisfy what's owed to St. Francis. He said an issue that's emerged in court late in the proceedings, whether HMC protected obligations owed to St. Francis, showed the two other plans will have difficulty meeting their financial projections.
Bennett said questions arose yesterday over whether HMC could pay $2.7 million to cover a portion of these obligations and showed the debtors didn't have the resources to pay the claims in full.
"If they can't do that, it's impossible for them to perform the rest of the promises that are contained in their plan," Bennett said, and it also raises questions whether the creditor committee plan will be viable.
"It undermines all the economic assumptions of their (HMC's) plan."
A creditor's committee attorney couldn't be reached late yesterday for a response. But Hasham said the debtors want to keep enough cash for hospital operations while trying to cover the obligation.
"At this stage, we have put forward a plan that we think is the most credible," Hasham said.
"Now it goes to people who will make a decision on it."