Buyer emerges for hospitals of bankrupt California chain

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The bankrupt Verity Health System of California has entered into a $610 million stalking horse bid agreement for the sale of its remaining four hospitals.

The KPC Group has agreed to purchase St. Francis and St. Vincent Medical Centers in southern California and Seton Medical Center and Seton Coastside in northern California.


“We are excited about the future of these hospitals,” said Peter Baronoff, CEO and managing director at The KPC Group, adding that he looks forward to maintaining “their excellent track record of care.”

KPC Group, parent company of KPC Healthcare, which operates seven hospitals in southern California, has agreed to continue to operate all four hospitals after the sale.

“When we began this process, our goal was to ensure these important historic institutions continued to provide the high-level of care local communities need and deserve,” said Rich Adcock, CEO of Verity Health.

A stalking horse bid agreement means the deal is contingent on the hospital system not receiving a better offer. An auction has been scheduled for April 8 and 9 though Verity said in court documents that the KPG offer represents a fair market value for the hospitals.

The nonprofit hospital system, formerly Daughters of Charity Health System, was renamed Verity after Integrity Healthcare, a company created by New York hedge fund BlueMountain Capital Management, took over management of the hospitals in July 2015. Last summer, Nantworks, a Culver City company controlled by billionaire Patrick Soon-Shiong, who owns the Los Angeles Times, purchased Integrity.

Despite $260 million in cash and loans infused into the healthcare system by BlueMountain and another $148 million infusion when NantWorks LLC acquired a controlling interest in 2017, the hospital system failed to prosper, according to a recent court filing.

Verity filed for bankruptcy August 31, citing annual losses of $175 million on a cash flow basis and $1 billion in bond and pension debt.

A Verity spokeswoman didn't respond to questions about how the bond debt would be treated by the buyers.

Verity entered an agreement on Oct. 2 for Santa Clara County to purchase the healthcare system’s other two northern California hospitals the O’ Connor Hospital and Saint Louise Regional Hospital, and the DePaul Clinic.

The hospital system ended up canceling an auction involving Santa Clara County as it was the only bidder on the northern California hospitals.

California Attorney General Xavier Becerra filed a motion to stay the $235 million sale to Santa Clara County protesting the bankruptcy judge’s decision to approve the sale without preconditions. The attorney general typically outlines a list of conditions for any sale of a non-profit hospital.

A hearing is scheduled Jan. 30 before the bankruptcy court to hear Becerra’s motion.

Becerra would have to approve the sale of the four hospitals to for-profit, KPC, The hospital chain's 2015 Integrity Healthcare deal came after a deal to sell the chain's hospitals to a for-profit operator fell apart after the California attorney general's office attached conditions the would-be buyer didn't accept.

The winning bid for the hospitals sought by KPG would be selected by the Verity Health Board of Directors, in consultation with its professional legal and financial advisors. It is subject to the approval of the Bankruptcy Court, and, depending on the buyer, the California Attorney General.

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