Steward Secures $225M Days Before It Was Set To Run Out Of Cash

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Dive Brief:

• Just three days before bankrupt Steward Health Care was set to run out of funds, the health system said it’s struck a deal to capture $225 million of additional debtor-in-possession financing to keep its operations afloat during Chapter 11 proceedings.
• The funds come from Steward’s FILO lenders, which include private credit lenders Sound Point Capital and Brigade Agency Services, as well as Chamberlain Commercial Funding, according to a press release shared with Healthcare Dive. 
• Steward will present the deal — which the system says is sufficient to finance operations prior to its July asset sales  — for approval in bankruptcy court later this week.

Dive Insight:

Steward entered its Chapter 11 restructuring process last month with $75 million in DIP financing from its landlord, Medical Properties Trust. 

However, when MPT declined to provide further funds Steward found itself back at the bargaining table attempting to coax a loan from its secured lenders, including the FILO lenders.

Steward has gone to the bargaining table with its FILO lenders in pursuit of DIP financing before without success. The troubled health system first sought financing from the lenders in March prior to filing for bankruptcy.

Advisors for Steward said terms from the FILO lenders’ hinged on Steward selling its hospitals, slashing its budget for critical operating expenses and closing certain facilities — a course of action Steward has been adamant it does not want to take during restructuring. 

The terms were untenable for Steward, and the health system declined the loan.

Last week, the FILO lenders submitted yet another offer, this time for $25 million. Steward attorneys told the court in a hearing last week that if the health system accepted that offer, Steward would find itself back before the court seeking to secure additional funds in a matter of weeks.

In search of a better offer, Steward solicited terms from 15 third-party lenders as well as its secured creditors, according to bankruptcy filings. Last week, a U.S. Bankruptcy Court judge approved an order meant to spark a more competitive bidding process and sweeten the pot for would-be DIP financiers — up to $6.75 million to third-party lenders and $750,000 to reimburse one or more lenders for expenses incurred during due diligence. 

The health system reviewed several offers before landing on the deal with the FILO lenders, Steward’s chief restructuring officer John Castellano said in a press release.

However, little is known about the deal terms.

The FILO lenders may have attached hefty conditions to their loan. Private lenders have been accused of issuing terms that squeeze distressed lenders by hiking up management fees or expenses and charging more for loans than banks offering comparable deals. 

Also Monday, Steward petitioned the court to allow it to reduce expenses by rejecting contracts with vendors that do not serve the estate and, in select cases, severing master leases with MPT. Steward is particularly keen to reject leases for undeveloped land and vacant buildings not being used for business operations.

In Steward’s next bankruptcy hearing, the health system will defend the motion and present the full DIP financing terms.