April 7, 2020 – Further to the Courts February 26th bidding procedures order [Docket No. 4165], and lacking any further qualified bids, the Debtors have canceled an auction scheduled for April 7th and selected Prime Healthcare Services, Inc. (“Prime”) as the successful bidder in respect of their St. Francis Medical Center assets (“St. Francis”) [Docket No. 4465].
Notwithstanding that the notice states that "the Debtors selected [past tense] Prime Healthcare Services, Inc. ('Prime') as the Stalking Horse Bidder, pursuant to the Bid Procedures Order," it does not appear that Prime has been referenced in any Court documents before this notice; and there are no details as to price or an asset purchase agreement. As recently as April 3rd, the Debtors filed a stipulation relating to the St Francis assets that did not mention a stalking horse and anticipated an April 7th auction.
The notice continues: "On the Bid Deadline, the Debtors received bids from potential purchasers, but, after consultation with their advisors and the Consultation Parties, determined that the bids did not satisfy the requirements to be Qualified Bids. Thereafter, the Debtors selected Prime as the Winning Bidder and did not conduct the Auction."
Prime operates 45 hospitals in 14 states. Founded by former cardiologist Dr. Prem Reddy in 2001, it is affiliated with the nonprofit Prime Healthcare Foundation. It is the second time in a week that a foreign-born and trained physician-turned-entrepreneur has made a surprise bid for one of the Debtors' assets; Dr. Patrick Soon-Shiong (founder of the Chan Soon-Shiong Family Foundation) having bid $135.0mn for the Debtors' St Vincent Medical Center hospital assets (“St Vincent" or "SVMC”). In that pending sale, and perhaps this one, the desire to address the COVID-19 pandemic was an important factor for the purchaser. Regardless of motive, in both cases these sales (pending of course more information on the St francis purchase price) appear to be very good news for the Debtors'creditors.
A sale hearing is scheduled for April 9th.
These are busy times for the Debtors on the asset sale front with news as to their proposed $135.0mn sale of SVMC to stalking horse Chan Soon-Shiong Family Foundation expected imminently. An auction in respect of the SVMC assets was scheduled for April 6th with a sale hearing on April 10th. The California Attorney General has has received a 1 day extension (until April 8th) to file an objection, if any to that sale.
St. Francis Bidding Procedures Order
[As previously reported] February 26, 2020 – The Court hearing the Verity Health System cases issued an order (i) approving bidding procedures, including bidder protections, in respect of a Section 363 auction/sale of the Debtors' St. Francis Medical Center (“St. Francis”) and related assets (the “Sale”) and (ii) a proposed auction/sale timetable culminating in an auction scheduled for April 7th and a sale hearing for April 9th [Docket No. 4165].
The Debtors appear cautiously optimistic about this renewed sales effort, noting that 53 parties had signed NDAs and 7 had progressed to submitting indications of interest ("IOIs").
St. Francis is back on the auction block as part of a "Plan B," which follows on from the collapse of Plan A, the Debtors' Court-approved $610.0mn sale of four California medical facilities (including St. Francis) to Strategic Global Management, Inc. (“SGM”). Two further hospitals in Santa Clara County (i.e., Saint Louise Medical Center and O’Connor Medical Center in Santa Clara County) had previously been sold for approximately $235.0mn.
In January, the Court granted the Debtors' emergency request to close their loss-making St. Vincent Medical Center and its dialysis center, St. Vincent Dialysis Center, Inc. [Docket No. 3934].
The Debtors' bidding procedures motion [Docket No. 4069] states, “The Debtors have vigorously marketed the Purchased Assets since before the Petition Date and have specifically marketed the Purchased Assets on a going concern basis as standalone assets since December 2019. The Debtors have received multiple indications of interest from a number of parties who are currently ready to commence the final due diligence process which may lead to the making of Bids. The Debtors will continue to market the Purchased Assets to any interested party through the Bid Deadline. For the reasons set forth below in greater detail, and in order to conduct a full and fair bidding process for the purpose of maximizing the consideration to be received by the Debtors’ estate for the Purchased Assets, the Debtors respectfully request that the Court grant the Motion.”
The motion continues: "On January 17, 2019, the Debtors filed a motion [Docket No. 1279] to approve the form of an asset purchase agreement and related ‘stalking horse’ bidding procedures for the sale of its four remaining hospitals, including St. Francis, to Strategic Global Management (‘SGM’), which the Bankruptcy Court approved on February 19, 2019 [Docket No. 1572]. No other qualified, competing bid was received by the Debtors in compliance with the approved bidding procedures; accordingly, no auction was held, and the Debtors declared SGM as the ‘winning bidder.’ See Docket No. 2053. On May 2, 2019, the Bankruptcy Court entered an order approving the sale [Docket No. 2306] to SGM.
Despite several notices and orders, SGM failed to close. See Docket No. 3899. On January 3, 2020, the Debtors filed a notice regarding their termination of the asset purchase agreement with SGM, effective as of December 27, 2019.
Cain commenced a new marketing process to identify parties potentially interested in acquiring St. Francis as a going-concern. In December 2019, Cain began making phone calls to parties that had previously expressed interest in acquiring St. Francis. On January 3, 2020, Cain emailed all parties that had executed a nondisclosure agreement (an ‘NDA’) in connection with the Debtors’ previous efforts to market St. Francis explaining that the Debtors were initiating another marketing process. As a result, in January 2020, 53 parties executed an NDA with respect to the Debtors’ renewed St. Francis marketing efforts and were granted access to a diligence data site.
On January 15, 2020, Cain sent a letter to all interested parties, which highlighted the proposed sale timeline and requested that parties submit IOIs on or before January 31, 2020. On January 31, 2020, the Debtors received seven IOIs for the potential acquisition of St. Francis."
Bid Protections: With the prior consent of the prepetition secured creditors, the Debtors may offer protections including a break-up fee and expense reimbursement in an amount not to exceed in the aggregate 2.5% (the “Break-Up Fee”). There is also a $2.0mn minimum overbid requirement.
About St. Francis
St. Francis operates a 384 licensed bed, general acute care hospital located at 3630 East Imperial Highway in Lynwood, California; (ii) has an emergency department with 46 licensed emergency treatment stations and is designated a Level II Trauma Center; (iii) has nine surgical operating rooms and three cardiac catheterization labs for inpatient and outpatient cardiac catheterization services; (iv) offers a comprehensive range of services, including emergency and trauma care, neonatal intensive, cardiovascular, oncology, pediatrics, behavioral health, and maternity and child services; and (v) offers various outpatient services, including ambulatory surgical services, laboratory services, imaging services, infusion therapy, nuclear medicine services, respiratory therapy, and physical therapy. Other outpatient services are provided at the following clinics: Orthopedics Clinic, Wound Care Clinic, Industrial Clinic, Lynwood Clinic, Downey Clinic , and Huntington Park Clinic.
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