- Morehead Hospital bankruptcy hearing to continue Monday
- December 8, 2017
GREENSBORO — The Eden community is still waiting to learn the fate of Morehead Memorial Hospital after a judge recessed until Monday a bankruptcy hearing on the hospital’s sale.
U.S. Bankruptcy Judge Benjamin Kahn adjourned Wednesday’s hearing in a packed courtroom to allow attorneys to review financial documents about the nonprofit hospital’s proposed sale to a for-profit Miami partnership for more than $11 million.
Kahn also declined to give the UNC Health Care system a few days to improve its losing cash offer of $500,000 and get back into the bidding. UNC Health has offered $25,000 to assist Morehead with operating expenses in exchange for time to make a better offer.
Kahn agreed with Morehead’s attorneys, who said the winning bidder followed the rules of the Oct. 30 bankruptcy auction and should be allowed to proceed.
Kahn adjourned the hearing after three hours of testimony about the Eden hospital’s proposal to sell its assets to the Empower iHCC partnership of Miami, Fla., for just over $11 million in cash, roughly $300,000 more than it originally offered just a week ago.
The hearing was suspended as the chief executive officer of Empower iHCC, Noel Mijares, was explaining the complex financial arrangement under which a lender has guaranteed the $15 million Empower will use to buy and operate the hospital and its buildings.
A creditors’ attorney in Morehead’s Chapter 11 case asked Mijares if his company could raise the money if the loan is reduced or falls through.
A finance company has guaranteed to lend the money to Empower if the hospital’s buildings appraise for their roughly $27 million tax value. Andrew Sherman, an attorney for the creditors in Morehead’s Chapter 11 case asked how Empower could guarantee it would pay the $11.06 million it has offered if the appraisal falls short and the lender reduces its loan.
Mijares said his company’s corporate partners could make up the difference and attorneys began to offer financial documents to support his answer. At that point, Kahn interrupted the hearing to give attorneys time to review seven documents that were introduced in testimony.
The small courtroom in the U.S. Bankruptcy Court for the Middle District of North Carolina was jammed with scores of Morehead employees and Rockingham County officials. Many wore blue Morehead Memorial Hospital T-shirts.
Kahn also overruled an objection filed by the N.C. Attorney General’s Office asking for 30 days to review the agreement. He said that the attorney general had plenty of time to file an objection before the Nov. 2 deadline after the bidding process concluded more than a week ago but that it waited until Monday to make that filing.
Special Deputy Attorney General Jennifer Harrod told Kahn that the attorney general reviews all “substantial” transfers of nonprofits, especially when they involve hospitals in rural areas being sold to for-profit companies.
Harrod said the attorney general does not have a problem with the terms of the deal but wants 30 days to review the case to make sure the deal is best for such a rural community served by a hospital like Morehead for decades.
”Is this charitable mission going to go forward?” Harrod asked. “In this circumstance that’s our primary concern.”
Kahn said, however, that Nov. 2 was the deadline for objections to the deal. But he added he shares the attorney general’s concern over the hospital’s future under the for-profit partnership.
Morehead’s lead bankruptcy attorney, Thomas Waldrep of Winston-Salem, spent the balance of the hearing presenting his client’s case for the deal.
The U.S. Department of Housing and Urban Development, a bankruptcy administrator and several major lenders had filed objections to the decision to favor Empower.
In addition to the $11.06 million in cash, the newly formed Empower iHCC partnership has offered $20 million in other considerations and to collect roughly $10 million in accounts receivable for a fee of 8 percent to raise more money for creditors. It is pledging to operate the hospital for at least 10 years.
Waldrep called to the witness stand two financial experts who have worked with Morehead in structuring the deal.
Michael Lane, a health care investment banker with the Hammond Hanlon Camp banking firm, said the market for community hospitals is good, with plenty of companies buying them in groups, but the outlook for a small hospital like Morehead is not as strong, especially if it is losing large amounts of money.
His firm contacted dozens of buyers interested in adding the hospital to their groups or in simply placing a financial investment with the hospital.
Under cross examination from Sherman he said he had not been familiar with Empower but he was not surprised that an unknown company placed a bid. Lane said Empower plans to set up the hospital’s ownership under a “shell holding company” that currently has no assets. But he said the company must guarantee it can supply the cash before the deal is consummated.
Lane said over 10 years the deal could ultimately be worth $30 million to the hospital’s creditors.
Waldrep also called Scott Davis, a certified public accountant whose specialty is distressed health care groups. He has worked with Morehead since February.
Davis said Morehead cannot continue to operate on its own without this deal. It is losing money, or “burning cash,” at the rate of $450,000 a week, and it will soon run out, he said.
Under the sale, Davis said, creditors will ultimately collect up to $27 million over several years. If the hospital closes, the most creditors would get is $15.5 million.
Dana Weston, Morehead’s president and chief executive officer, who was in the courtroom audience, said later that she has learned not to be surprised by the twists and turns of the case.
“Bankruptcy is a process,” Weston said, “and you have to let the process work.”