St. Michael’s Medical Center, one of the oldest hospitals in New Jersey, recently announced that it will file for Chapter 11 bankruptcy protection, according to NJ.com. The hospital hopes to sell its assets to Prime Healthcare Services for $49.2 million.
Saint Michael’s becomes insolvent and seeks sale
In bankruptcy documents, Saint Michael’s officials cited that it has had difficulty in implementing recommendations from a state-commissioned study. NJ Biz reported that this study found that the hospital should convert its operations into modern ambulatory centers to alleviate an oversupply of patients at other hospital facilities, rather than continue operations as an acute care center. State officials cited financial difficulties as the main reason for their recommendations, as the hospital has a debt total of $233 million. As a result, the hospital was put up for sale in 2013, and received an offer from Prime Healthcare Services, but the state has not approved the deal. With Chapter 11 bankruptcy protection, the hospital’s $1.8 million monthly payments on state-backed bonds will be frozen.
According to CEO David Ricci, St. Michael’s decision to seek bankruptcy protection was due to the fact that the hospital was unable to make a $1.3 million payment on its outstanding debt.
The hospital’s reorganization plan includes auction sale
Saint Michael’s hopes that its bankruptcy filing will expedite its long-awaited sale to Prime Healthcare for $50 million, according to the NJ Biz report. In 2013, the hospital reached an asset purchase agreement with Prime Healthcare, which has been amended in hopes of state approval. However, Ricci claimed that the hospital will hold an asset auction sale, with Prime Healthcare serving as the stalking horse bidder, setting the floor as the lowest bid for potential buyers. Currently, there are no other prospective bidders for the hospital.
With its debt repayments frozen, St. Michael’s officials stated in court papers that the hospital has the liquidity to maintain operations throughout the restructuring process. Ricci explained that no interruptions in service are expected and that there are no plans to close the facility or downsize its 1,400-person workforce.
St. Michael’s officials also noted in court documents that the hospital will file a series of motions with the court to ensure it can maintain full operations, fulfill employee payroll and benefit obligations and maintain physician privileges.