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Beverly Community Hospital Association – Montebello, CA Not-for-Profit Hospital Files for Bankruptcy with over $100.0mn in Liabilities Citing Meteoric Rise in Costs; Lines Up $13mn of DIP Financing to Pursue Asset Sale; Eyes California AG Warily

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April 19, 2023 – Beverly Community Hospital Association and two affiliated debtors (dba Beverly Hospital together “Beverly Hospital” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Central District of California, lead case No. 23-12359 (Judge Sandra R. Klein). The Debtors, operators of a "not-for-profit, leading and independent 202-bed acute care facility" located in Montebello, CA, are represented by Jennifer L. Nassiri of Sheppard, Mullin, Richter & Hampton LLP. Further Board authorized appointments include: (i) Portage Point Partners, LLC (“Portage Point”) as financial advisor and investment banker and (ii) Kurtzman Carson Consultants as claims agent.

The Debtors’ lead petition notes between 1 and 50 creditors; estimated assets between $1.0mn and $10.0mn; and estimated liabilities between $100.0mn and $500.0mn ($65.0mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) California Department Of Health Care Services ($21.9mn "DSH/QAF Fees" claim), (ii) Noridian Healthcare Solutions, Llc ($3.2mn "Repayment of Medi-cal/Medicaid Claim") and (iii) Alhambra Hospital Medical Center ($3.0mn "unsecured debt" claim).

Petition Date Highlights

  • Montebello, CA Not-for-Profit Hospital Operating in "Underprivileged and Underserved Community" Files for Chapter 11 with over $100.0mn of Liabilities ($65.0mn of Funded Debt) 
  • Cites "Meteoric Rise in Labor and Medical Supply Costs" and Failure of Medicare and Medi-Cal Base Rates to Keep Pace
  • Will Continue Prepetition Asset Sale Efforts
  • Lines Up $13.0mn of DIP Financing from HRE Montebello, LLC
  • Flags Concern California AG May Repeat Over-Bearing Regulatory Role That Sank Peer Madera Community Hospital

Goals of the Chapter 11 Filing

The Cheng Declaration (defined below) provides: "Beverly Hospital must address its severe financial distress through a formal restructuring process to keep its doors open….The end goal is to find a buyer to keep Beverly Hospital solvent and solve its biggest challenges in managing costs to meet healthcare needs and offer expanded services."

Events Leading to the Chapter 11 Filing

In a declaration in support of first day filings (the “Cheng Declaration), Alice Cheng, the Debtors' President and Chief Executive Officer, commented: “An undeniable reality is that safety net hospitals in California have suffered severe financial distress in recent years: A meteoric rise in labor and medical supply costs—while Medicare and Medi-Cal base rates have failed to adjust to absorb such increases. More than half of California’s hospitals were projected to have negative margins through 2022….Since 2020, Beverly Hospital has ended each fiscal year in the red; in 2022, it burned over $25 million of cash….Simply put, hospitals like Beverly Hospital, in an underprivileged and underserved community, suffer from a combination of high overhead, decreased economics of scale, the absence of high-margin service lines, and thus, a much more precarious financial situation….

Unfortunately, the financial challenges Beverly Hospital faces are not unique. California’s hospitals have greatly struggled since the pandemic and many are closing or on the verge of collapse. A closure of Beverly Hospital would have a catastrophic and devastating impact on the health needs of this community akin to what happened in Madera County, California. In January, Madera Community Hospital shut down all its services and clinics before filing for chapter 11 bankruptcy. The story and sequence of events leading up to Beverly Hospital’s chapter 11 cases are similar to that of Madera Hospital: Madera, too, had served largely low-income patients for decades, and its financial struggles only worsened in the wake of the COVID-19 pandemic. Madera pursued a prepetition sale process that was unsuccessful as a result of numerous, financial impracticable conditions imposed by the California Attorney General, who asserts oversight authority in health care mergers involving nonprofit hospitals.

Prepetition Marketing Efforts

The Cheng Declaration provides: "In consultation with Portage Point and Sheppard Mullin, the Debtors conducted a marketing process to seek a stalking horse purchaser and whether any party in connection with such a stalking horse bid would potentially provide bridge financing for short-term liquidity. The Debtors simultaneously ran a debtor-in-possession financing marketing process with their advisors to secure the best available financing terms to fund these chapter 11 cases. The Debtors also engaged with their secured creditors to relay the current financial situation and impending filing and ask whether any of their existing lenders had a desire to extend debtor-in-possession financing. The Debtors, with the assistance of their advisors, re-engaged with parties that had previously considered an affiliation or merger with Beverly Hospital. Specifically, the Debtors negotiated non-disclosure agreements and provided diligence in response to specific requests. 

Additionally, the Debtors launched a broader sale process to solicit interest from other potential buyers. Despite the Debtors’ efforts, they were unable to execute a sale agreement (in principal or documented) prior to the Petition Date.

DIP Financing

The Debtors have commitments for $13.0mn of debtor-in-possession ("DIP") financing from HRE Montebello, LLC, with $6.0mn of that amount to come with an interim DIP order. 

Prepetition Indebtedness

As of the Petition date, and as summarized in the table below, the Debtors’ capital structure consists of outstanding funded-debt obligations in the aggregate principal and interest amount of approximately $65.0mn.

DIP Financing

The Debtors have commitments for $13.0mn of debtor-in-possession ("DIP") financing from HRE Montebello, LLC, with $6.0mn of that amount to come with an interim DIP order. 

About the Debtors

According to the Debtors: “Since 1949, Beverly Hospital has maintained a tradition for providing high quality care to local residents of Montebello, Pico Rivera, Monterey Park, El Monte, Whittier, East Los Angeles and surrounding communities.

Beverly Hospital is a not-for-profit, leading and independent 202-bed acute care facility that is proud of the medical services and comfort provided to patients. From emergency room and hospitalization to outpatient procedures, Beverly Hospital offers a full range of services with the latest technology on diagnostic and treatment options. A medical staff of over 300 physicians, representing a wide spectrum of specialties, is supported by experienced and dedicated employees and volunteers, who strive to deliver high-tech, high-touch services, preventive education and patient care.“

Corporate Structure Chart

 

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The post Beverly Community Hospital Association – Montebello, CA Not-for-Profit Hospital Files for Bankruptcy with over $100.0mn in Liabilities Citing Meteoric Rise in Costs; Lines Up $13mn of DIP Financing to Pursue Asset Sale; Eyes California AG Warily appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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