ATLANTA - Georgia International Health Alliance, parent company of South Fulton Medical Center, has filed for Chapter 11 bankruptcy protection following the inability of the medical center to regain financial stability after experiencing operating losses and numerous downgrades.
Medical center officials are negotiating with Heller Healthcare Finance, a national health care company, to provide the hospital with funds while it reorganizes.
The amount of financing has not been released, but Anthony Beirne, executive vice president and treasurer of Heller's parent company Heller Financial Inc., said loan amounts in these situations are "on average" $6 million.
South Fulton, Georgia International's flagship, has secured a loan commitment from Heller to ensure the hospital remains open during the reorganization. The hospital also is in negotiation to be sold to a national health care company, but officials would not identify which one.
Officials at the nonprofit medical center in East Point, Ga., said filing for protection will allow the hospital to remain open while it negotiates its sale. Whether South Fulton can make its estimated $3.3 million July payment on $35 million of revenue anticipation certificates is unclear.
The hospital does have a debt service reserve fund that is supposed to contain at least one year of interest payments, said Richard Woodward of King & Spalding, who was the bond counsel on the deal. However, in a report released by Fitch IBCA Inc. in March, analysts said that the hospital debt coverage level had weakened so that its ability to make debt service payments was threatened.
The holders of outstanding South Fulton certificates have been warned twice over the past month that the hospital was in trouble and could default. In March, Fitch downgraded the certificates to B from BBB, after concluding the hospital had about eight days of cash on hand. Just yesterday Standard & Poor's downgraded the center to D, after lowering it to CCC from B-minus last week. The agency noted that the hospital might not make its July 1 payment on bonds issued through the Tri-City Hospital Authority in Georgia.
Jill Smith, spokeswoman for the medical center, said the hospital made several attempts to get finances back on the right track, including cutting 100 jobs and closing a rehabilitation unit.
However, those efforts weren't enough, Smith said, explaining that the situation was exacerbated by annual revenue losses stemming from the Balanced Budget Act of 1997 and the costs of getting their computer systems Y2K-ready. The hospital also geared up last year to issue about $10 million to $12 million of new-money debt, but the plan was halted when rating agencies got wind of the financial problems and issued downgrades, Woodward said.
Heller Healthcare, owned by Chicago-based Heller Financial, could be the company to turn things around for the acute care hospital. Formerly Healthcare Financial Partners Inc., Heller Healthcare is the leading independent health care receivables finance company in the nation, according to Fitch. The rating agency's report states that the parent company had its seventh consecutive year of record earnings in 1999, reporting net income of $236 million.
"It would be a shame if the hospital went out of business," Woodward said. "It is a large hospital, a big employer, and a major economic engine in that area."
