Promise Healthcare Group and numerous affiliates filed for Chapter 11 protection Sunday night in Delaware.
What Ails Promise Healthcare?
Promise Healthcare is a Florida-based specialty post-acute care healthcare provider operating several hospitals and skilled nursing facilities across nine states. It operates two short-term acute care hospitals, 14 long-term acute care hospitals and two skilled nursing facilities. According to the company, Promise Healthcare is one of the largest long-term acute care hospital operators in the U.S.
“While I believe that the Debtors’ overall business is fundamentally strong, [Promise Healthcare has] been operating with an unsustainable balance sheet due to current industry dynamics and certain underperforming facilities within [its] portfolio.” – Andrew Hinkelman, FTI Consulting, Chief Financial Officer
Like many hospital operators that have filed chapter 11 recently, such as ManorCare Health Services, Promise Healthcare has suffered from significant reductions in reimbursement rates from The Centers for Medicare & Medicaid Services. Average reimbursement rates for non-qualifying patients have dropped roughly $41,000 per stay industry wide. Coupled with Promise’s inability to adjust operating cost structures, this has directly impacted profitability.
What Are the Next Steps on the Road to Recovery?
Step 1: Sell Non-Core Assets.
Promise Healthcare has already received purchase offers for several non-core assets. Offers in hand, it hopes to complete sales and use the proceeds to pay down secured loans over the next three months.
- The Silver Lake Facility: L.A. Downtown Medical Center has offered to purchase Promise Healthcare’s Silver Lake facility section for $84.15 million. The offer will be subjected to overbids in a bankruptcy auction. A sale closing is planned for January or February of 2019.
- The St. Alexius Facility: Promise Healthcare has been looking for a buyer for its facility in St. Louis for the past year-and-a-half to two years. However, it has been hindered by the termination of its Medicare program in November, the need for substantial capital improvements, and heavy operating losses. Despite these challenges, Promise Healthcare is negotiating a stock sale which it hopes to conclude by year end.
- San Diego Property: Promise Healthcare is also in final negotiations to sell its San Diego property. It hopes to conclude this sale as well by year end.
Step 2: Obtain Postpetition Financing.
Promise Healthcare has requested $85 million in postpetition financing, including a rollup of its $65 million prepetition asset-based revolving loan facility and a new money commitment of $20 million, with prepetition revolving lender Wells Fargo Bank as agent.
Step 3: Come Up With an Exit Strategy.
Over the next 6 months, Promise Healthcare will search for an exit. That could be a buyer for the business. Or an equity sponsor who will support a reorganization. Houlihan has already contacted 77 financial and strategic partners and received “several” indications of interest. Ultimately, Promise Healthcare hopes to file a bid procedures motion by the end of the year, with the intention of closing a sale around April 2019.
Prime Clerk is the claims agent. Additional information about the case is available here.