After considering Mercy Iowa City’s argument that it’s an increasingly “fragile organization” forced into a bankruptcy filing after suffering “significant and negative destruction of value,” a U.S. bankruptcy judge Wednesday agreed to expedite the timeline of the hospital’s sale — presumably to the University of Iowa — setting a bid deadline of Sept. 19.
“In order to effectuate the transaction with the university (or any bidder that is ultimately selected as the highest or otherwise best bid at an auction), time is of the essence,” according to a declaration from Mercy’s Chief Restructuring Office Mark E. Toney. “To the extent the timeline becomes materially delayed, it will only further impact (Mercy’s) cash position.”
After struggling for years to navigate the pandemic and changes across the health care landscape, Mercy Hospital — forecasting continued deprivation of its cash balance to just $1.8 million by October — this week filed for Chapter 11 bankruptcy protection, announcing expectations the UI will buy its assets for $20 million.
Given the Mercy assets must go out for bid, UI ownership isn’t a foregone conclusion — although as “stalking horse bidder” the university has established its bid as the first and set the minimum price at $20 million. The Iowa Board of Regents approved the deal in a meeting Tuesday, though it still must wend its way through the bankruptcy proceedings.
Another outside entity could try to outbid the university — although it must offer at least $21.3 million, show proof they’re good for it, provide information on health care experience and state their intentions for the assets, among other things, according to a court order Wednesday.
If one or more qualified bids come in, an auction will be held at 10 a.m. Sept. 22.
In response to Mercy’s request for “bid protections” favoring the UI, a judge this week imposed — among other things — a “breakup fee” that any alternate winning bidder would have to pay the UI for expenses it incurred before the auction.
“Other potential buyers are able to bid as part of the process,” a Mercy Iowa City spokeswoman told The Gazette. “The selected organization is generally the one offering the highest and best bid, with some advantages given to health care organizations that will take care of patients, and will continue to serve employees and the community.”
In its 150th year, Mercy Iowa City — which is not affiliated with Mercy Medical Center in Cedar Rapids — has 194 licensed beds, operates an emergency room with more than 30,000 visits a year and in the budget year that just ended tallied about 5,000 inpatient admissions, 1,550 observation admissions and 800 newborn deliveries.
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In addition to the main hospital, Mercy Iowa City owns or operates 18 primary and specialty clinics and employs a workforce of 1,122 employees and more than 90 physicians — making it the fifth largest employer in Iowa City.
The UI is the state’s largest employer, and Mercy officials said they “firmly believe” that its acquisition of the community hospital will allow it to continue caring for patients.
Among details outlined in the university’s lengthy purchase agreement was a caveat that Mercy shall “terminate the employment of all of the facility employees currently employed” and the UI — subject to background checks — will “make offers of employment, for employment effective as of the day following the closing date.”
The university, additionally, has agreed that Mercy medical staff in good standing “shall maintain medical staff privileges at the hospital” and won’t be required to be on the UI Health Care staff.
In asking the court for an expedited hearing and special bid provisions favoring the university, Mercy officials recounted how its largest bondholder, Preston Hollow Community Capitol of Texas, directed Mercy to reject a separate UI offer earlier this year. The bondholder has since asked a district court to appoint a receiver over Mercy.
After the university offered a $605 million investment to take ownership of Mercy in 2021 — a deal that fell through — the parties reengaged in late 2022 and early 2023 about a renewed UI offer that would have involved potential a bankruptcy filing, according to Mercy Chief Restructuring Officer Toney.
“Preston Hollow took the position that (Mercy) should not engage with the university under the terms of the proposal because the proceeds would be insufficient to pay Preston Hollow’s debt in full,” Toney said in a declaration. “Although (Mercy) asked Preston Hollow on many occasions to speak directly with the university to encourage the university to increase or negotiate on its offer, Preston Hollow refused.”
In the months that followed, Mercy and Preston Hollow continued discussions about the hospital’s financial position — escalating to a point that prompted the Mercy board to schedule a meeting with Preston Hollow’s chief executive officer on July 25.
But, before that day arrived, Preston Hollow canceled and instead filed a petition in Johnson County District Court asking a judge to appoint a receiver over Mercy’s operations. That, Toney said, created a “media frenzy” that caused irreparable harm.
“In the days that followed … Mercy Hospital was hit with a deluge of cancellations for patient procedures and postponed patient appointments, unexpected and untimely employee resignations, canceled job interviews, physician resignations, and other negative impacts,” Toney wrote. “Many of these issues were directly attributable to the false statements, disparaging remarks about Mercy Hospital, its board, and its management team, as well as broad dissemination of confidential information.”
In analyzing the overall impact of “these vindictive actions of the bondholder parties and their agents, including potential causes of action relating to, among other things, defamation, tortious interference, lender liability, equitable subordination and others,” Toney said Mercy reserves “all rights to initiate an adversary proceeding to assert those and other claims.”
“It is my fervent belief that the careless and callous actions taken, and in the manner carried out by Preston Hollow and (trustee) Computershare have jeopardized the health and well-being of Mercy’s patients, the limited viable options for Mercy Hospital’s future, and have resulted in significant and negative destruction of value for all of the (Mercy’s) stakeholders,” he wrote.
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“In order to effectuate the transaction with the university (or any bidder that is ultimately selected as the highest or otherwise best bid at an auction), time is of the essence,” according to a declaration from Mercy’s Chief Restructuring Office Mark E. Toney. “To the extent the timeline becomes materially delayed, it will only further impact (Mercy’s) cash position.”
After struggling for years to navigate the pandemic and changes across the health care landscape, Mercy Hospital — forecasting continued deprivation of its cash balance to just $1.8 million by October — this week filed for Chapter 11 bankruptcy protection, announcing expectations the UI will buy its assets for $20 million.
Given the Mercy assets must go out for bid, UI ownership isn’t a foregone conclusion — although as “stalking horse bidder” the university has established its bid as the first and set the minimum price at $20 million. The Iowa Board of Regents approved the deal in a meeting Tuesday, though it still must wend its way through the bankruptcy proceedings.
Another outside entity could try to outbid the university — although it must offer at least $21.3 million, show proof they’re good for it, provide information on health care experience and state their intentions for the assets, among other things, according to a court order Wednesday.
If one or more qualified bids come in, an auction will be held at 10 a.m. Sept. 22.
In response to Mercy’s request for “bid protections” favoring the UI, a judge this week imposed — among other things — a “breakup fee” that any alternate winning bidder would have to pay the UI for expenses it incurred before the auction.
“Other potential buyers are able to bid as part of the process,” a Mercy Iowa City spokeswoman told The Gazette. “The selected organization is generally the one offering the highest and best bid, with some advantages given to health care organizations that will take care of patients, and will continue to serve employees and the community.”
In its 150th year, Mercy Iowa City — which is not affiliated with Mercy Medical Center in Cedar Rapids — has 194 licensed beds, operates an emergency room with more than 30,000 visits a year and in the budget year that just ended tallied about 5,000 inpatient admissions, 1,550 observation admissions and 800 newborn deliveries.
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In addition to the main hospital, Mercy Iowa City owns or operates 18 primary and specialty clinics and employs a workforce of 1,122 employees and more than 90 physicians — making it the fifth largest employer in Iowa City.
The UI is the state’s largest employer, and Mercy officials said they “firmly believe” that its acquisition of the community hospital will allow it to continue caring for patients.
Among details outlined in the university’s lengthy purchase agreement was a caveat that Mercy shall “terminate the employment of all of the facility employees currently employed” and the UI — subject to background checks — will “make offers of employment, for employment effective as of the day following the closing date.”
The university, additionally, has agreed that Mercy medical staff in good standing “shall maintain medical staff privileges at the hospital” and won’t be required to be on the UI Health Care staff.
‘Significant and negative destruction’
In asking the court for an expedited hearing and special bid provisions favoring the university, Mercy officials recounted how its largest bondholder, Preston Hollow Community Capitol of Texas, directed Mercy to reject a separate UI offer earlier this year. The bondholder has since asked a district court to appoint a receiver over Mercy.
After the university offered a $605 million investment to take ownership of Mercy in 2021 — a deal that fell through — the parties reengaged in late 2022 and early 2023 about a renewed UI offer that would have involved potential a bankruptcy filing, according to Mercy Chief Restructuring Officer Toney.
“Preston Hollow took the position that (Mercy) should not engage with the university under the terms of the proposal because the proceeds would be insufficient to pay Preston Hollow’s debt in full,” Toney said in a declaration. “Although (Mercy) asked Preston Hollow on many occasions to speak directly with the university to encourage the university to increase or negotiate on its offer, Preston Hollow refused.”
In the months that followed, Mercy and Preston Hollow continued discussions about the hospital’s financial position — escalating to a point that prompted the Mercy board to schedule a meeting with Preston Hollow’s chief executive officer on July 25.
But, before that day arrived, Preston Hollow canceled and instead filed a petition in Johnson County District Court asking a judge to appoint a receiver over Mercy’s operations. That, Toney said, created a “media frenzy” that caused irreparable harm.
“In the days that followed … Mercy Hospital was hit with a deluge of cancellations for patient procedures and postponed patient appointments, unexpected and untimely employee resignations, canceled job interviews, physician resignations, and other negative impacts,” Toney wrote. “Many of these issues were directly attributable to the false statements, disparaging remarks about Mercy Hospital, its board, and its management team, as well as broad dissemination of confidential information.”
In analyzing the overall impact of “these vindictive actions of the bondholder parties and their agents, including potential causes of action relating to, among other things, defamation, tortious interference, lender liability, equitable subordination and others,” Toney said Mercy reserves “all rights to initiate an adversary proceeding to assert those and other claims.”
“It is my fervent belief that the careless and callous actions taken, and in the manner carried out by Preston Hollow and (trustee) Computershare have jeopardized the health and well-being of Mercy’s patients, the limited viable options for Mercy Hospital’s future, and have resulted in significant and negative destruction of value for all of the (Mercy’s) stakeholders,” he wrote.
Judge sets Sept. 19 bid deadline for Mercy Iowa City sale
After considering Mercy Iowa City’s argument that it’s an increasingly “fragile organization” forced into an emergent bankruptcy filing after suffering “significant and negative destruction of value,” a U.S. bankruptcy judge on Wednesday agreed to expedite the timeline of the hospital’s sale –...
www.thegazette.com
