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Verity Health System – Further to Likely Coronavirus Contracts, Former Suitor SGM Asserts a Renewed Interest in the Debtors’ Seton Hospital Assets

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March 25, 2020 – KPC Global Medical Center of San Mateo County, LLC (“Global” of "GMC"), an affiliate of Strategic Global Management, Inc. (“SGM”), has notified the Court of its intent to bid on the Debtors’ Seton Medical Center and Seton Coastside hospitals (collectively, “Seton”) [Docket No. 4347]. GMC's notice (i) urges the Court to eschew an anticipated private sale and maintain an open-ended sale process that would include their own bid and (ii) couches the value of its own bid in part on its superior ability to assist patients and the State of California during the coranavirus crisis; questioning whether the Debtors' "under stress and likely understaffed" facilities might be more useful under their own ownership. 

SGM's renewed interest will be viewed with considerable hostility from important stakeholders, including the Debtors and the Court. In November 27, 2019, the Court entered an order [Docket No. 3724] finding that SGM was obligated to close its $610.0mn purchase of substantially all of the Debtors' assets (including Seton) by December 5, 2019. That did not happen. Having been jilted at the alter by SGM after what had already been a very difficult bankruptcy (largely relating to regulatory approvals), the Debtors have spent the ensuing difficult months trying to sell-off and close their assets piecemeal.

On March 16th, Global notified the Court that it had communicated to the Debtors an offer in respect of the Seton assets which Global valued at more than $80.0mn ($50.0mn in cash and $30.0mn of excluded accounts receivable). It also complained to the Court that it had been blocked from the Debtors' data room and hence to the form APA with which it might otherwise make a more formalized offer. 

The $80.0mn offer may now be somewhat dated, given the suddenly increased value of the Seton assets in the age of coronavirus. On March 19th, the Debtors filed an emergency motion with the Court requesting permission to enter contracts with the State of California to assist in the treatment of an expected influx of coranavirus patients [Docket No. 4302]. Those contracts include the provision of space at Seton and at the Debtors' St Vincent facilities, the latter facilities otherwise in the process of being closed by the Debtors. 

The motion states: "The first agreement (the Service Agreement) provides that there will be “Designated Space” at Seton Hospital to ensure the treatment of patients affected by the pandemic in exchange for a monthly payment of up to $5 million. The second agreement (the Lease) provides that the State will lease St. Vincent, as a closed facility, for a monthly payment of $2.6 million; the State may operate or engage a third party to operate a hospital at St. Vincent. The Agreements further the Debtors’ mission to provide affordable and effective healthcare to their communities and to assist the State in its fight against the COVID-19 pandemic. Furthermore, the Agreements will inject funds into the estates to cover certain operational and monthly losses."

The fact of revised business prospects, however, was not the only thing that caught the eye of SGM. The Debtors' emergency motion also flagged that a private sale of the Seton assets was in the works; the motion states: "Since the sale to Strategic Global Management, Inc. did not close, the Debtors have been diligently analyzing options to keep Seton Hospital open as an operating hospital and are currently in the process of negotiating a sale of Seton Hospital as an operating hospital."

The current Global motion states: "Global believes that opening the sale process to competitive bidding would be in the best interests of all parties in interest in the Debtors’ cases as well as in the interests of the San Mateo community, the Seton employees, and healthcare practitioners. Global also believes that if it is permitted to participate in an open sale process, it will demonstrate that it can provide substantial economic value to the Debtors’ estates and professional management to Seton, that is vital to addressing the current Covid-19 healthcare crisis and long term needs of Seton and the community it serves. While the issue of how or when a Seton sale will be conducted is not currently before the Court, in light of the possibility that a sale may be presented on an expedited basis, Global is requesting that the Court approve a process which will provide an opportunity for qualified bidders to have access to the data room, and participate in the sale process."

Urging the Court to see the relative advantages of an SGM bid in the present crisis (ironically including the fact it had already received regulatory clearances as part of its earlier aborted purchase of the Debtors), SGM adds: "We believe the Seton facilities are currently under stress and likely understaffed. The Seton facilities may not be able to respond to urgent healthcare needs as they normally would. GMC is committed to keeping the Seton facilities open as an essential part of the healthcare system in the communities they serve. GMC is particularly well suited to respond to the virus as its seven affiliated hospitals in Southern California are currently at the forefront of the fight against the dreaded disease. If given the opportunity, GMC can respond more quickly than any other bidder to putting Seton on the road to an appropriate and stable recovery while providing enhanced care against the virus."

Global's March 16th communication stated: "On March 6, 2020, GMC made a written offer to the Debtors to purchase Seton’s assets for $50 Million, cash, excluding Seton’s accounts receivables and pre-closing Quality Assurance Fund ('QAF') revenues, which SGM estimates as having a value of approximately $30 Million which results in an aggregate value to the Debtors in excess of $80 Million. GMC made this offer at a time when the Debtors had announced that they were considering closing Seton’s two hospitals; which would have left the community with insufficient healthcare capacity particularly in this time of pandemic and national emergency."

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The post Verity Health System – Further to Likely Coronavirus Contracts, Former Suitor SGM Asserts a Renewed Interest in the Debtors’ Seton Hospital Assets appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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