L.A.-Area Hospital Nears Agreement on Chap. 11 Exit

LOS ANGELES — Downey Regional Medical Center, a non-profit hospital located in greater Los Angeles, is close to reaching an agreement with Avanti Health Systems LLC that would enable it to exit Chapter 11 bankruptcy and make its bondholders whole.

Downey had been talking to several potential financial partners, but resumed negotiations with Avanti when a deal with RCB Equities #1 LLC fell through in October, said Robert Fuller, the hospital's executive vice president and chief operating officer.

The bankruptcy exit plan called for the hospital, with the support of its new backer, to pay holders in full for its $20.6 million of outstanding tax-exempt debt, issued in 1993 through the California Health Facilities Financing Authority.

The hospital has remained current on debt service during its two years in bankruptcy.

"The proposal is for Avanti to step into RCB's shoes on the deal," Fuller said. "What happened was [RCB] made demands that were not conducive to the future operations of the hospital."

The two parties are still negotiating pricing, but under the agreement, Downey would retire its tax-exempt bonds and issue federally taxable bonds through CHFFA, Fuller said.

Downey would continue to operate its facility as an independent, nonprofit general acute-care hospital. It would not merge with Avanti, but a management agreement is part of the deal, Fuller said.

"The management staff will stay the same, but we will have another boss," Fuller said.

Avanti and its affiliates currently own and operate four acute-care facilities in Southern California: East Los Angeles Doctors Hospital, Memorial Hospital of Gardena, Community Hospital of Huntington Park and Coast Plaza Hospital.

Avanti's hospitals do not offer advanced surgeries such as neonatal or cardio services. Under the agreement, Fuller said that Downey could provide such services for more critically ill patients at Avanti's other hospitals at a better price than they would get at Cedars-Sinai Medical Center.

"At some point, the credit markets will ease up and we will go to a general issue of bonds, so that Avanti can be taken out," Fuller said. "That is the five- to 10-year plan."

Downey hopes to receive approval on its reorganization plan in January and then sell the bonds in January or February, Fuller said.

The hospital filed for Chapter 11 relief in the Bankruptcy Court for the Central District of California on Sept. 14, 2009.

Avanti officials did not respond to phone calls seeking comment.

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Bankruptcy Healthcare industry California
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