IOWA CITY — Mercy Iowa City has arranged tours of its health care facilities next week for potential bidders interested in competing for its assets against the University of Iowa — which last month made an initial “stalking horse” bid of $20 million to buy the 150-year-old community hospital.
During a hearing Wednesday in U.S. Bankruptcy Court — following Mercy’s Aug. 7 filing for Chapter 11 protection — attorney Felicia Perlman, representing Mercy through her Chicago firm, McDermott Will & Emery, said, “We do have several parties who have signed (nondisclosure agreements) and are active in the data room, and we are providing diligence to and these tours for.”
“We’ll know more whether they are likely to be real bidders or whether they lose interest,” Perlman told Judge Thad Collins in response to his request for a status update.
She reported active recruitment and outreach to any individuals or entities that have expressed interest.
“We are hopeful to have other bidders,” Perlman said.
Mercy unveiled the UI as its initial $20 million bidder Aug. 7, the same day it filed for bankruptcy. Two days later, the hospital proposed a Sept. 19 deadline for competing offers and built in “bid protections” for the university — raising concerns among the hospital’s secured creditors, who Mercy owes $63 million.
In response to questions about whether such a truncated timeline would chill competing bids and whether other objectionable provisions — like the UI protections and a caveat implying the facility must remain a hospital — Mercy attorneys this week agreed to sale-procedure amendments, which Judge Collins on Wednesday indicated he’ll approve.
Among other things, those changes made clear a winning bidder doesn’t have to continue operating Mercy as a hospital; wouldn’t have to pay UI as much as originally proposed if it outbids the university; and has until Oct. 2 to submit an offer — moving back the deadline nearly two weeks.
“If you say, ‘Hey, we need a few more weeks to get more value,’ that seems like a no-brainer for me,” Collins said during Wednesday’s hearing, but noted he’s keeping a double-barreled focus throughout the proceedings on both maximizing the value of the assets and doing it “as quickly as possible.”
“Everybody that’s looking at this wants the best value because there’s not enough to go around already, and we want to make sure we get everybody paid the best we can,” he said. “In order to keep everything running and maintaining its value, we need to move as quickly as we can.”
Bondholders
Though pleased with sale-procedure revisions, an attorney representing Mercy’s largest bondholders — Megan Preusker, with Mintz, Levin, Cohn, Ferris Glovsky and Popeo out of New York — told the court, “We still have concerns with the underlying sale process and the formulation and acceptance of the university’s $20 million bid for the assets.”
That leading offer, she said, “appears not to be based on any valuation and we believe is far below the fair market value.” And, although supportive of a bid deadline delay, Preusker said, “We have not yet agreed on how to fund a longer sale process.”
“We believe the debtors have access to up to $9.7 million in unrestricted cash and investments of the Mercy Hospital Foundation,” she said. “And we’ve uncovered evidence that Mercy Hospital has sole and absolute control over the foundation.”
Pensioners
In addition to a long list of hundreds of unsecured creditors — individuals and entities that Mercy owes money not secured with collateral — are past and present employees that joined the hospital’s pension plan in hopes of receiving regular payments after retiring.
Given the pension plan is not fully funded, seven former pension-due Mercy employees on Wednesday unveiled they’ve obtained an attorney. Paula Roby, with Day Rettig Martin in Cedar Rapids, entered her appearance at Wednesday’s hearing on behalf of that initial group of seven — telling the court a much larger group is looking to get involved.
“This is a group that is rapidly coming together,” she said. “There is a group of at least 65, at this point, that are involved in discussions with my clients. And we anticipate there being more. As such, we may bring some sort of motion for a committee of pensioners or a class.”
Roby said she’s researching how best to proceed toward the aim of ensuring “these people’s pensions are protected.”
In response, Perlman — on behalf of Mercy — confirmed all pension obligations are currently being paid and the pension fund cannot be used for any other purpose.
“It is currently underfunded; the underfunding is an actuarial calculation, so it changes as the market changes,” she said. “But the pension obligations will continue to be paid out of that fund.”
The sale creates questions about the future of the pension plan, given the UI offer excludes that plan and its liabilities from transferring to the university.
“Through the sale process, if another bidder comes up that takes the pension plan, that could be one solution for the pension at the end,” Perlman said. “Otherwise, after the sale process is completed, if the pension does not go with the purchaser, we understand we will have to figure out what happens with that pension in terms of ongoing administration or paying out those funds.”
Patient care report
A patient care ombudsman — appointed just days after Mercy filed for bankruptcy to monitor patient care quality and report to the court immediately upon finding patient care was declining or “significantly compromised” — filed her initial report this week, noting no “material decline in the quality of patient care.”
“Yet the previous and continuing number of core and agency staff departures, particularly, but not exclusively in the nursing role, could impact (Mercy’s) ability to continue staffing the inpatient units that were open during (the ombudsman’s) site visit,” according to ombudsman Susan Goodman, reporting she was struck by the amount of “staff departures and emotional fatigue.”
“After the bankruptcy filing, several nursing staffing agency recruiters reportedly pulled their agency staff,” Goodman reported. “To be clear, (the ombudsman) did not observe any patient staffing ratios that were concerning during her site visit. Continued nursing and non-nursing recruitment efforts were reported.”
But uncertainty remains, she said, posing potential problems.
“While recruitment to backfill attrition losses is occurring, the continued uncertainty and news stories suggesting that acute-care hospital services may not continue was reported as impacting recruitment,” according to Goodman. “Further, remaining staff expressed assignment fatigue as they worked to cover staffing gaps through extended and/or extra shifts and assignments.“
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