Defaulting Alabama hospital starts bankruptcy

The Jackson Hospital and Clinic of Montgomery, Alabama, has entered Chapter 11 bankruptcy, affecting $61 million of bond debt it defaulted on in September.

The hospital owes an additional $5 million bridge loan to bondholders and has more than $100 million in trade debt to vendors and others, according to a filing from Allen Wilen, the hospital's chief restructuring officer and a partner at the Eisner Advisory Group.

As part of the bankruptcy, it has arranged for a $24.5 million debtor-in-possession loan from the Jackson Investment Group, which will give the loan "superpriority" ahead of bondholder liens, according to a notice filed on the MSRB's EMMA web site. The bankruptcy court has approved the hospital drawing up to $10 million of this loan and will consider approving drawing the balance at a March 4 hearing.

The hospital filed for bankruptcy in the U.S. Bankruptcy Court for the Middle District of Alabama on Feb. 3.

"While we have taken important steps to strengthen leadership, enhance revenue, and better manage costs and liquidity, we are operating in what continues to be an extremely challenging environment," Wilen said in a statement on the hospital's web site. "Bankruptcy is never an easy decision. However, it is the best path forward for the hospital's stakeholders as we focus resources on continuing to operate."

Chapter 11 gives the hospital the time and breathing room needed to explore strategic alternatives, resolve legacy debt, establish a single platform to settle claims, and ensure the hospital's future, Wilen said.

Bondholders had offered a $20.5 million debtor-in-possession loan to the hospital conditional on the city of Montgomery providing a fully collateralized $20.5 million loan guarantee, according to a hospital statement. The hospital provided the city with all required information, the hospital said.

At a Jan. 31 city council meeting some council members declined to vote on the guarantee. Instead, some council members made changes to the council resolution and asked for information that the hospital had already given it, the hospital said.

"After the Jan. 31 city council meeting, the bondholders expressed concern that we could not effectuate the loan guarantee and therefore, they could not extend the financing needed to fund the hospital's operations," Wilen said on Feb. 4. "We had no choice but to consider alternate paths to continue the hospital's uninterrupted operation, leading to today's announcement."