Dallas-headquartered Steward Health Care System, the nation’s largest physician-owned hospital operator, has filed for Chapter 11 protection.
Steward operates 33 community hospitals in nine states and has more than 30,000 employees. The company has been dealing with financial difficulties for several years, and in January Medical Properties Trust (NYSE:MPW), a real estate investment trust, reported that Steward owed it about $50 million in unpaid rent.
On its website, the company stated it was “finalizing terms of debtor-in-possession financing from Medical Properties Trust for initial funding of $75 million and up to an additional $225 million upon the satisfaction of certain conditions acceptable to Medical Properties Trust.”
The company cited elevated operating costs, insufficient reimbursement by government payors and the residue of the disruptions created by the Covid-19 pandemic as being among the main reasons behind its problems. Steward insisted that the bankruptcy filing will not disrupt operations at its hospitals.
“In the past several months we have secured bridge financing and progressed the sale of our Stewardship Health business in order to help stabilize operations at all of our hospitals,” said CEO Dr. Ralph de la Torre in a statement. “With the delay in closing of the Stewardship Health transaction, Steward was forced to seek alternative methods of bridging its operations. With the additional financing in this process, we are confident that we will keep hospitals open, supplied, and operating so that our care of our patients and our employees is maintained. By working collaboratively with stakeholders in this court-supervised controlled environment, and having the benefit of our earlier strategic efforts, Steward will be better positioned to responsibly transition ownership of its Massachusetts-based hospitals, keep all of its hospitals open to treat patients, and ensure the continued care and service of our patients and our communities.”
Rob Simone, managing director and partner at Hedgeye Risk Management and head of the Stamford, Connecticut-based company’s REITs coverage, did not view the announcement as a surprise.
“It is early and we are waiting for first day motions, but we believe that Steward has effectively been insolvent for years,” said Simone, who has been a prominent critic of Medical Properties Trust’s operations. “It was only kept out of bankruptcy by the graces of MPT’s balance sheet. As soon as MPT pushed its own leverage to the max and ran low on liquidity, the entire circular arrangement fell apart. Chapter 11 begins the ‘healing process’ for this very unfortunate and painful situation.”
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