The judge's patience is running thin in the Chapter 11 bankruptcy of Jackson Hospital and Clinic in Alabama, which includes $61 million of municipal bond debt.
"This was a close call for me," U.S. Bankruptcy Judge Christopher Hawkins said Tuesday after he agreed to extend the debtor's period to propose a plan of adjustment to the end of December from the end of October.
"Operating at a loss is just not sustainable," said Hawkins, of the United States Bankruptcy Court for the Middle District of Alabama.
He said the court's patient care report, which said patients are being well-cared for and that the hospital staff has a positive outlook, helped him extend the period for the debtor to propose a plan.
The hospital filed for bankruptcy on Feb. 3. It
Hawkins asked the attorney for the debtor-in-possession lender, Paul Rosenblatt for Jackson Investment Group, about the status of efforts to gain grants from Montgomery city and county for the hospital. In prior filings, the debtor had promised to gain commitments of $100 million in grants by the end of October.
Rosenblatt said the creditors are "comfortable with the levels of commitment we have received." He said JHC was going forward at the end of the week with its commitment to the creditors to replace its board of directors.
Judge Hawkins said would likely not grant another motion for extending the exclusivity period.
Hawkins said the hospital should be sure to have a secondary strategy if the current approach doesn't work and the bankruptcy goes down an alternate path. He suggested that the alternate path would include the shutdown of hospital operations, saying JHC must be ready to safely transfer patients and handle environmental issues.
The parties are seeking to auction parts of JHC's operations and/or assets.
In a Chapter 11 bankruptcy after the petition for bankruptcy is filed, the debtor has the exclusive right to file a reorganization plan for 120 days and exclusive right to solicit creditor acceptance of plan for 180 days. While judges may extend these deadlines, once the deadlines end, other bankruptcy parties can propose plans.
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At the end of September, JHC asked Hawkins to amend the existing debtor-in-possession credit agreement and make other changes.
Specifically, it asked the judge to extend the DIP credit agreement's maturity date, increase the commitment of the DIP creditors to $25 million from $21.6 million and reinsert bankruptcy milestones. The amendments included requiring the JHC to gather commitments to $100 million in government grants by the end of October. Once this was achieved or the Jackson Investment Group waived the requirement, the JHC board of directors would be reconstituted with members acceptable to the DIP lender.
According to these amendments, JHC promised to submit an acceptable plan of adjustment to the court by Dec. 1 and that the court would confirm the plan by Jan. 31.
In the document JHC told Hawkins its requested changes to the debtor in possession amendments would provide time to maximize the debtor's assets for the benefit of all creditors.
Hawkins approved the debtor's late September requests in mid-October.
Around the same time JHC asked for the right to submit its plan by the end of the calendar year rather than by the end of October. It also asked for the right to solicit votes on the plan through Jan. 31, 2026.
Hawkins approved those requests Tuesday afternoon at the hearing.
The Series 2015 Jackson Hospital and Clinic revenue bonds maturing in 2036 were trading from 50 to 60 cents on the dollar from about a year ago until March in odd lot trades, according to the Municipal Securities Rulemaking Board's EMMA site. The bonds have since slid in odd lot trades to a trade at 31 cents on the dollar in the latest trade, in early October. There haven't been any trades of $1 million or more in the last 12 months.
In addition to the $61 million in bonds, JHC owes bondholders
On Oct. 24, Jackson Investment Group asked the court to vacate JHC's participation in a class action settlement that it joined after the start of the bankruptcy.
Since the group filed the motion, it hasn't found any opposition to it, the group's attorney Chase Potter, managing partner with the Dallas law firm Iacuone McAllister Potter, said Tuesday.
Stuart Memory, an attorney with Memory Memory and Causby, represented the debtors on the topic and said his party wishes to reserve all rights on the matter but that it doesn't oppose Jackson Investment Group's motion.
An attorney for the unsecured creditors also said the group didn't oppose the motion.
Hawkins said he had no problem with the motion and that he would "circulate the order" but he didn't know what the judge in the case with the settlement, who is in the District Court for the Northern District, would do with the order. The case was closed in the last few months.
In its Oct. 24 filing, the Jackson Investment Group said JHC's participation in the settlement should be vacated because the opting into it took place after the bankruptcy started and was approved by neither the court nor the group. This conflicted with the bankruptcy's interim order and Debtor in Possession term sheet.
The settlement was with Blue Cross and Blue Shield. By not opting out of the settlement, the group said arguably JHC "purported to bind themselves to a release of valuable estate cause of action against BCBS." On July 29 JHC submitted a claim form in the settlement.
