Mercy Iowa City bought in bankruptcy auction by Texas-based finance company

Mercy Iowa City bought in bankruptcy auction by Texas-based finance company

[ad_1]

Mercy Iowa City, Oct. 11, 2023 — Genevieve Trainor/Little Village

Preston Hollow Community Capital, the Texas-based specialty finance company that is Mercy Iowa City’s largest creditor, was the winning bidder in the bankruptcy auction of Mercy’s assets, which include the 234-bed Iowa City hospital, as well as the Mercy Family Medical Centers in Kalona, Tipton, West Liberty and Williamsburg.

Mercy filed for Chapter 11 bankruptcy on Aug. 7, saying it was doing so in response to legal action taken by Preston Hollow in July, as the firm sought to force Mercy into receivership. Preston Hollow, which bought $41.8 million of the bonds Mercy issued in 2018, said a court-appointed receiver was needed because Mercy was in “financial freefall” and “on the verge of insolvency.” According to Preston Hollow’s filings, Mercy’s own financial documents showed it had a negative cash flow of approximately $2.6 million per month.

At the time, Mercy objected to the receivership motion, claiming it was a “pretextual power play by an investment fund that puts the medical team, employees, patients and larger community at risk,” and was filed because Mercy rejected the company’s “aggressive and improper demands to abruptly change management.”

On the same day it filed for bankruptcy, Mercy announced it planned to enter into a purchase agreement with the University of Iowa Hospitals and Clinics (UIHC). The agreement called for UIHC to purchase “substantially all” of Mercy’s assets for $20 million. Mercy’s creditors objected to the low sale price — two years ago, UIHC proposed paying $605 million for Mercy, but the offer was rejected — and the judge ordered the sale of assets to go to auction.

Preston Hollow entered a credit bid in the auction, using the amount of the debt Mercy owed it as collateral for the purchase price instead of entering a cash bid.

“In connection with the hospital acquisition, Preston Hollow Community Capital and the other bond investors will also make significant capital investments in order to stabilize the hospital’s operations, restore community-care service lines, and bring the facility back to profitability,” Preston Hollow said in a statement on Tuesday night.

The firm said it plans to turn over management of Mercy to California-based American Healthcare Systems (AHS), a for-profit company that runs three healthcare systems — one in Texas, the others in Michigan and Tennessee — all of which AHS purchased this year. AHS will run Mercy as “an Iowa not-for-profit organization with board members comprised of community leaders in Iowa City and Johnson County,” according to Preston Hollow’s statement.

The purchase deal still needs to be approved by the judge overseeing the bankruptcy proceedings, but the parties said they anticipate that happening, and for AHS to take control of Mercy as soon as mid-November.

“We look forward to the new vision and path forward from AHS for the health system and are pleased by the commitment being made by AHS and Preston Hollow,” Mark Toney, Mercy’s chief restructuring officer, said in a news release.

The Gazette’s Vanessa Miller reported that “Preston Hollow and American Healthcare Systems will conduct all-team meetings with doctors, nurses, and other Mercy employees to collect feedback and recommendations, answer questions, and ‘establish the partnership necessary to continue meeting the hospital’s mission in the years to come,’” as part of the transition process.

[ad_2]

Leave a Comment

Your email address will not be published. Required fields are marked *