Prospect Medical Faces Landlord Brawl, Cash Burn in Bankruptcy
Bankrupt hospital chain Prospect Medical Holdings Inc. won court permission to start drawing from its $100 million Chapter 11 financing despite a challenge from landlord Medical Properties Trust Inc.
(Bloomberg) -- Bankrupt hospital chain Prospect Medical Holdings Inc. won court permission to start drawing from its $100 million Chapter 11 financing despite a challenge from landlord Medical Properties Trust Inc.
Judge Stacey G.C. Jernigan said late Tuesday she’d authorized Prospect’s request after company advisers testified that the hospital operator’s cash dwindled to about $3 million before filing for protection on Jan. 11. MPT challenged the financing, saying it improperly puts the new debt ahead of its liens.
“We’ve gotta keep these hospitals open,” Jernigan said.
Prospect said it needed the new financing to reassure creditors that were burned in the 2024 bankruptcy of another hospital chain, Steward Health, which is poised to saddle vendors with steep losses. MPT was also a major landlord to Steward.
Prospect lawyer Thomas R. Califano said during a Tuesday court hearing that the company was close to running out of money last week. It has about 12,500 employees and operates 16 acute and behavioral hospitals in California, Connecticut, Pennsylvania and Rhode Island, according to court documents.
“We need new financing,” Califano said. “We got dangerously close to being out of money last week.”
MPT is Prospect’s largest secured creditor, according to court documents. Prospect said in court papers that it owes at least $1.7 billion on MPT hospital leases and loans. MPT said it deferred “hundreds of millions of dollars of rent” before Prospect sought court protection.
Tuesday’s ruling gives Prospect immediate access to $29 million of the $100 million Chapter 11 financing, which is being provided by JMB Capital Partners. Separately, the company has lined up a $90 million revolving credit facility from eCapital Healthcare Corp., according to court documents
Liquidity crisis
As Prospect tries to push ahead its bankruptcy funding plan, the hospital operator is dealing with a deepening liquidity crisis and oversight from regulators.
After news came out about Prospect’s potential restructuring, the company received demands from its vendors for payments while it only had $3 million on hand, said Paul Rundell, chief restructuring officer of the company on Tuesday.
A US Senate report that come out earlier this month also accused Prospect Medical and its investor — private equity firm Leonard Green & Partners — of maximizing profits at the expense of patients. The report “strained relationships” with state regulators and vendors, attorney Califano told the bankruptcy court.
The healthcare facilities operated by Prospects are mainly safety-net hospitals, which means they are the only hospital in the region and considered important to local communities, according to Rundell.
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First Published:15 Jan 2025, 06:13 AM IST
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