LOS ANGELES — California's Daughters of Charity Health System has closed on a management agreement with a hedge fund that is designed to keep the hospital chain out of bankruptcy.
DCHS struck an agreement with BlueMountain Capital Management LLC in July in which the hedge fund would invest $250 million in the ailing chain of six hospitals in the San Francisco Bay and Los Angeles regions.
Monday's closing came just 11 days after California Attorney General Kamala Harris signed off on the agreement to save the hospital system, which had been losing millions of dollars a year.
The chain was renamed Verity Health System of California. It has been converted from a nonprofit religious corporation to a nonprofit public benefit corporation.
Under the 15-year management agreement, BlueMountain pays $100 million for the option to purchase the hospital chain. It will also provide $150 million of guaranteed financing to support the health system's financial and capital needs and commit $180 million for capital expenditures.
The system still has $280 million in 2005 long-term revenue bonds that are junk-rated outstanding.
Nearly simultaneously with the closing, Verity issued $160 million of 2015 notes through the California Public Finance Authority, a conduit issuer, according to an event filing posted on the Municipal Securities Rulemaking Board's EMMA site.
A portion of the notes issued Monday and the unspent proceeds of $125 million in 2014 notes were used to pay off the latter, which matured on Dec. 15.
The notes were issued in four series. The $60 million Series 2015A tax-exempt notes were the only ones that have been funded. The tax-exempt $45 million Series 2015B notes and the taxable $10 million Series 2015C notes must be drawn by Dec. 15, 2016. The tax-exempt $45 million Series 2015 D Notes must be drawn by Dec. 15, 2017.
The notes were issued by CalPFA, a new conduit issuer created on July 7 by Kings County and the Housing Authority of Kings County under the state's Joint Exercise of Powers Act.
DCHS reached the agreement with BlueMountain in July after restrictions imposed by Harris on a previous deal to sell the hospitals to Prime Healthcare Services tanked that deal.
BlueMountain, a global investment firm with more than $21 billion under management, formed Integrity Healthcare to oversee the hospital group. It formed a new hospital board to oversee the hospital and replaced the hospital's executive staff.
Mitch Creem, who was named chief executive officer, has 30 years of experience running hospitals. That experience includes nearly four years as chief executive officer of Keck Hospital of the University of Southern California and more than three years as the Associate Vice Chancellor and chief financial officer of the University of California-Los Angeles Medical Center.
Integrity Healthcare, wholly owned by BlueMountain, will manage and operate the six California hospitals and the medical foundation, enabling the system to maintain its nonprofit status.
For at least the first three years of the agreement, the health system will continue to operate as a nonprofit public benefit corporation. After three years and before the expiration of the 15-year agreement, BlueMountain can exercise the option to purchase the health system.
BlueMountain agreed to not lay off any staff.
Jane Brust, a Verity spokeswoman, said Integrity plans to grow the hospital chain and invest capital and could actually hire more people as part of its growth plans.
"Our Verity Health System leadership team is already working closely with our hospital CEO to plan our strategies for revitalizing the hospitals that are so vitally important to the communities we serve," Brust said.
Those plans include significant investment in capital improvement projects at each hospital including purchasing new equipment as well as facilities improvements, investment in new clinical programs and services and cultivation of new partnerships and affiliations, according to Brust.
