Regional News

California Health Care District Files for Bankruptcy

SAN FRANCISCO – A small health care district in Northern California has filed for Chapter 9 bankruptcy protection.

The Mendocino Coast Health Care District, which runs a 25-bed hospital, reported to the Municipal Securities Rulemaking Board on Friday that it filed for bankruptcy.

The health care district, a government agency that also runs a hospice program, said in court documents that holders of its more than $14 million of outstanding insured debt are expected to be unimpaired by the restructuring.

The district, based in Fort Bragg, Calif. in Mendocino County, filed a bankruptcy petition on Oct. 17, stating it has more than 200 creditors and $10 million to $50 million in liabilities.

Starting in April, district officials began the 60-day mediation process with creditors, plus a one-month extension, as provided for in a recent state law for financially distressed local governments. The district said it was unable to reach an agreement with its two most interested creditors – the Cal Mortgage Loan Insurance program, a division of the state’s Office of Statewide Health Planning and Development, and the United Food and Commercial Workers Local 8.

According to its most recent audited financial statement in 2010, the district had $11.7 million in outstanding bonds - $2.5 million of 1996 insured revenue bonds, $4.9 million of 2009 insured revenue bonds and $4.3 million of general obligation bonds issued in 2001.

The district sold $2.87 million of insured revenue bonds in 2010 after the release of the audited financials.
Cal Mortgage insured all of the district’s outstanding revenue bonds, while Financial Guaranty Insurance Co. insured the GO bonds, which are backed by a voter-approved property tax.

The district’s CEO will not comment during the bankruptcy process, a spokesman said.

A statement provided by the district said it had an operating loss of more than $400,000 in the first two months of the fiscal year before its board voted in September to approve the bankruptcy filing. In fiscal 2010, the district reported an operating budget of $43 million.

A spokesman for Cal Mortgage could also not be reached by publication deadline. 

According to documents filed with the MSRB, the health care district had already defaulted on the 1996, 2009 and 2010 revenue bonds prior to the bankruptcy filing.

The Bank of New York Mellon Trust Co. is the trustee for the three revenue bond issuances.
Standard & Poor’s rates the insured revenue bonds at A-minus with a positive outlook.

The state created hospital districts to serve populations that lack health care in remote areas or to help the poor in urban areas.

During the economic boom years of the 1940s, California lawmakers created agencies with the passage of the Local Hospital District Law in 1946, allowing the independent districts to access funds, such as parcel tax receipts, to meet health needs.

The Mendocino Coast Health Care District, formed in 1967, has joined a cast of other struggling government-run small health care facilities in California that have struggled in recent years while serving small, low-income or rural communities. Some have been forced to declare bankruptcy.

The Sierra Kings Health Care District filed for bankruptcy in October 2009 after discovering management had spent $1.7 million of bond funds on operating expenses and misspent other funds. In 2007, Valley Health System in Riverside County filed for Chapter 9 bankruptcy.

Several other small California non-profit health care facilities shave also come near to or have filed for Chapter 11 bankruptcy in recent years.


(1) Comment



Comments (1)
hoping its not $11.7 billion... #Corrections
Posted by Spencer Chang | Wednesday, November 14 2012 at 10:14AM ET
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