Steward Health Care is aggressively courting new debtor-in-possession lenders to stay afloat amid its Chapter 11 restructuring process. Without additional capital, the health system says it will run out of funds by June 14.
Medical Properties Trust, Steward’s landlord and initial DIP financier, appears unlikely to step up to the plate to offer more funds.
The Dallas-based health system, which employs 30,000 people across eight states, declared bankruptcy last month. At the time, the real estate investment trust put up $75 million of DIP financing and said it might offer up to $225 million more, contingent upon successful asset sales.
But MPT has since shown little interest in providing additional financial support for Steward. As of Friday, Steward’s attorneys told the court that MPT had made no further commitment to pony up funds, leaving the health system in immediate need of new funding.
Other asset-based lenders offered Steward $25 million in DIP financing, but the health system’s legal team said that amount would land the company back in front of Judge Christopher Lopez in a matter of days.
“We’re always running out of money,” Tyler Cowan, global head of restructuring and liability management at Lazard, who is working with Steward, said during a U.S. Bankruptcy Court hearing Monday. “There’s never any kind of long term kind of runway, and that is what we’re trying to put in place. In this particular instance, we need a long term solution for this case, your honor, and another band aid that buys us another week is not that.”
To attract more lenders, Lopez approved an emergency motion on Monday allowing the health system to offer “commitment fees” of up to $6.75 million to third-party lenders and up to $750,000 to reimburse one or more lenders for expenses incurred during due diligence.
The commitment fees — which can be thought of as compensation for conducting due diligence on possible loan agreements — are meant to sweeten the pot for would-be lenders to ensure the process of selecting Steward’s next DIP financier is as competitive as possible, according to Steward’s attorneys and Lopez.
“It allows everyone to put their best cards on the table sooner rather than later,” Lopez said during the hearing. “This is what’s going to create a robust, competitive process. I’m all for it.”
It’s unclear who will emerge as the next DIP financier.
MPT may still offer financing, however, it’s a less attractive proposition for the REIT now that MPT is unable to attach sales targets to DIP financing terms.
The landlord has been hit hard by Steward’s bankruptcy filing. MPT recorded a $736 million loss for the first quarter on a write down of $693 million related to Steward ventures. CEO Edward Aldag told analysts during its most recent earnings call it had not “committed to providing any additional funding beyond this initial $75 million.”
Steward has contacted 19 third-party lenders in addition to Steward’s existing ABL and FILO lenders and offered non-disclosure agreements to 15 in order for them to begin to conduct due diligence on Steward, according to court documents filed Friday.
Steward’s attorneys said there was “significant interest” from the new lenders, but did not list names.
During the hearing, Lopez also approved an amended sales timeline for Steward assets.
Steward’s physician group, Stewardship Health, and its non-Florida and Texas hospitals will be submitted by June 24 for a July 11 sales hearing. Remaining assets have a bid deadline of Aug. 12 and a sales hearing of Aug. 22.
Attorneys for Steward stressed they remain very focused on selling Stewardship to UnitedHealth subsidiary Optum, or another buyer.
The healthcare network is aware of the Department of Justice and the state of Massachusetts’ antitrust concerns, which were again presented during Monday’s hearing.
However, they said that time is of the essence in order to retain physicians.
“Our competitors are circling,” said Ray Schrock, one of Steward’s attorneys. “Especially through a sale process, you have to keep people motivated and know that they have a future at Steward or with an acquirer.”
Rebecca Pifer 
Emily Olsen