As Monday’s final sale hearing approaches in the heated bankruptcy of Iowa City’s oldest and only remaining community hospital, precarious deals are being tested by objections and rising tempers — including from Mercy Hospital partners and creditors unlikely to get the millions they’re due.
Steindler Orthopedic Clinic — which for generations has partnered with Mercy, recently making deals related to Steindler’s development of a $29.3 million ambulatory surgery center in North Liberty — took specific issue with the prospect its contracts could be assigned to University of Iowa Health Care, slated to buy Mercy’s assets for $28 million.
“Steindler has the right to enforce the prohibition against the assignment of the North Liberty (ambulatory surgery center) agreements by Mercy without Steindler's consent, as the agreements concern the future development, operation, and ownership of (the) center,” according to an objection Steindler filed Friday in U.S. Bankruptcy Court. “Steindler’s’ ability to decide which entities are allowed to join in that development is a fundamental term of the North Liberty ASC agreements.”
Given that control was central to the deal, according to Steindler’s objection, “Mercy should not be allowed to use the bankruptcy filing to attempt to dictate to Steindler that other entities may have an opportunity to interject themselves into Steindler’s ambulatory surgical center’s development and operation.”
Not said in the filing is that UIHC is building a $525.6 million hospital — just over a mile east of Steindler along the same Forevergreen Road in North Liberty — that will house its own orthopedics department.
The university’s standing offer to buy Mercy Iowa City, going before a judge Monday, comes after years of failed negotiations and backroom drama — including a UIHC offer in 2022 to buy Mercy for a $605 million investment over 10 years.
Steindler, in its objection Friday, for the first time publicly revealed its involvement in that deal’s failure.
“Steindler was approached by Mercy and its representatives, who provided Steindler with ‘UIHC Requirements and Mitigating Alternatives’ and stipulated that UIHC’s offer to acquire Mercy would fail if Steindler would not alter the North Liberty Ambulatory Surgery Center agreements, including modifying the restrictive covenants in the North Liberty Ambulatory Surgery agreements and agreeing to grant 51 percent ownership of Steindler’s North Liberty ASC to UIHC,” according to court documents.
“The very intent of the agreement would fail if the agreements were assumed by the type of competitor for which the agreements were designed,” according to the objection. “The restrictive covenants, which Mercy said was necessary for UIHC to close the widely publicized $605M offer for Mercy, were intentionally drafted to protect Steindler from competition.”
After UIHC’s 2022 offer failed to materialize, and Mercy’s financial position continued to decline, the hospital was pushed into Chapter 11 bankruptcy in August — announcing at that time the university had made a “stalking horse bid” of $20 million for essentially all its assets.
When the sale went to auction, Mercy’s largest bondholder Preston Hollow Community Capital and master trustee Computershare tapped some of the nearly $63 million in debt Mercy owed them to “credit bid” above UIHC’s $20 million offer.
The university initially opted not to bid above the $20 million offer, prompting Mercy to continue the auction — rather than close it that first day. When the auction resumed nearly a week later, the UI did up its bid — only to be topped again by Preston Hollow, who initially was declared the winner.
Days later, though, friction emerged over how and who was going to cover Mercy’s ongoing operating losses through the transition to Preston Hollow, which planned a partnership with Los Angeles-based American Healthcare Systems to maintain Mercy as a community hospital.
Given those funding disagreements, Mercy reopened the auction Oct. 27, reversed the results and declared the UI the actual winner — closing the auction and promptly setting a hearing date for Monday.
The university has declined to disclose from where it will pull the $28 million should a judge finalize the sale. Both the UI and Board of Regents officials have repeatedly declined to disclose whether that will come from the campus’ general fund or another funding pool, like patient revenue or investment income.
Steindler Orthopedic Clinic — which for generations has partnered with Mercy, recently making deals related to Steindler’s development of a $29.3 million ambulatory surgery center in North Liberty — took specific issue with the prospect its contracts could be assigned to University of Iowa Health Care, slated to buy Mercy’s assets for $28 million.
“Steindler has the right to enforce the prohibition against the assignment of the North Liberty (ambulatory surgery center) agreements by Mercy without Steindler's consent, as the agreements concern the future development, operation, and ownership of (the) center,” according to an objection Steindler filed Friday in U.S. Bankruptcy Court. “Steindler’s’ ability to decide which entities are allowed to join in that development is a fundamental term of the North Liberty ASC agreements.”
Given that control was central to the deal, according to Steindler’s objection, “Mercy should not be allowed to use the bankruptcy filing to attempt to dictate to Steindler that other entities may have an opportunity to interject themselves into Steindler’s ambulatory surgical center’s development and operation.”
Not said in the filing is that UIHC is building a $525.6 million hospital — just over a mile east of Steindler along the same Forevergreen Road in North Liberty — that will house its own orthopedics department.
The university’s standing offer to buy Mercy Iowa City, going before a judge Monday, comes after years of failed negotiations and backroom drama — including a UIHC offer in 2022 to buy Mercy for a $605 million investment over 10 years.
Steindler, in its objection Friday, for the first time publicly revealed its involvement in that deal’s failure.
“Steindler was approached by Mercy and its representatives, who provided Steindler with ‘UIHC Requirements and Mitigating Alternatives’ and stipulated that UIHC’s offer to acquire Mercy would fail if Steindler would not alter the North Liberty Ambulatory Surgery Center agreements, including modifying the restrictive covenants in the North Liberty Ambulatory Surgery agreements and agreeing to grant 51 percent ownership of Steindler’s North Liberty ASC to UIHC,” according to court documents.
“The very intent of the agreement would fail if the agreements were assumed by the type of competitor for which the agreements were designed,” according to the objection. “The restrictive covenants, which Mercy said was necessary for UIHC to close the widely publicized $605M offer for Mercy, were intentionally drafted to protect Steindler from competition.”
After UIHC’s 2022 offer failed to materialize, and Mercy’s financial position continued to decline, the hospital was pushed into Chapter 11 bankruptcy in August — announcing at that time the university had made a “stalking horse bid” of $20 million for essentially all its assets.
When the sale went to auction, Mercy’s largest bondholder Preston Hollow Community Capital and master trustee Computershare tapped some of the nearly $63 million in debt Mercy owed them to “credit bid” above UIHC’s $20 million offer.
The university initially opted not to bid above the $20 million offer, prompting Mercy to continue the auction — rather than close it that first day. When the auction resumed nearly a week later, the UI did up its bid — only to be topped again by Preston Hollow, who initially was declared the winner.
Days later, though, friction emerged over how and who was going to cover Mercy’s ongoing operating losses through the transition to Preston Hollow, which planned a partnership with Los Angeles-based American Healthcare Systems to maintain Mercy as a community hospital.
Given those funding disagreements, Mercy reopened the auction Oct. 27, reversed the results and declared the UI the actual winner — closing the auction and promptly setting a hearing date for Monday.
The university has declined to disclose from where it will pull the $28 million should a judge finalize the sale. Both the UI and Board of Regents officials have repeatedly declined to disclose whether that will come from the campus’ general fund or another funding pool, like patient revenue or investment income.
Mercy Hospital sale agreements spark objections
As Monday’s final sale hearing approaches in the historic and heated bankruptcy of Iowa City’s oldest and only-remaining community hospital, precarious deals are being tested by objections and rising tempers – including from Mercy Hospital partners and creditors unlikely to get the millions they’re due.
www.thegazette.com
Last edited: