Distressed Health Care Financing in the New Economy
by: Peter S. Hartheimer
General Capital Partners LLC; Nyack, N.Y.
How the world has changed. There was a time when, if a nursing home was experiencing financial difficulty, they went to their current lender and asked for an extension or additional capital. If they had to file for chapter 11 protection, they would secure debtor-in-possession (DIP) financing from the current lender or choose from a bevy of alternative lenders and factors.
Today, CFOs and CROs are faced with a shrinking pool of resources to secure DIP and/or exit financing from chapter 11. The needs of the nursing homes have not changed—only how they will be fulfilled. Skilled nursing facilities have always required a form of working capital, which stems from a few factors.
Health Care Presentations at the Annual Spring Meeting and in Chicago
by: David N. Crapo
Gibbons PC; Newark, N.J.
The Health Care Committee’s meeting and presentation at the ABI Spring Meeting on April 2, 2009, was timely, exciting and full of information, advice and guidance on health care financing in the current financial crunch. Materials prepared by Moderator Tim Lupinacci (Baker, Donelson, Bearman, Caldwell & Berkowitz PC; Birmingham, Ala.), and two colleagues outlined the dangers to secured lenders of health care providers arising from the implementation of the Federal Payment Levy Program by the Centers for Medicare and Medicaid Services (CMS). This program allows CMS to deduct up to 15 percent of a health care provider’s Medicare Part A and B payments to offset federal tax liabilities, as well as the various steps the secured lender can take to protect itself. Sarah Sumner Duggan (Capmark Finance Inc.; Birmingham, Ala.), focused on the relative strengths and weaknesses of note and asset sales as a means of financing a health care business, reminding attendees that, as with other transactions, “timing is everything.” Sharyn Zuch (Wiggin and Dana LLP; Hartford, Conn.) focused on state court remedies, especially receiverships, leading the attendees through a typical receivership procedure addressing (1) the difficulties of obtaining financing (noting that the sale of a health care provider, rather than restructuring, was the likely exit strategy), (2) the interplay between receiverships and the Bankruptcy Code and (3) the pros and cons of utilizing a receivership to deal with a financially troubled health care provider, concluding that receivership should be a last resort approach to financing. Last, but by no means least, Robert McCarrick (GE Healthcare Financial Services; Bethesda, Md.) walked the audience through the various means of creative restructuring during a downturn like the current one, concluding with the sobering assessment that obtaining health care financing will continue to difficult.
The Health Care Committee will resume its dialogue on distressed health care financing in the current economy with a stand-alone conference, Health Care Triage 2009, on June 26 at Loyola University Law School in Chicago. The main venue for the conference will be Loyola’s stunning new state-of-the-art courtroom/conference room that has incredible views of Chicago. Members are urged to attend this conference, especially in light of the recent movement in the discussion of health care reform in Washington. Information is available at www.abiworld.org/HC09.