PHOENIX - A Northern California Bankruptcy Court is considering whether a healthcare district that closed its only hospital with $57 million of certificates of participation outstanding can move forward in its reorganization plan after objections from the trustee and insurer.

The courtroom drama centers around the West Contra Costa Healthcare District, which filed for Chapter 9 relief Oct. 20 2016 after mounting financial losses forced it to close its only hospital in April 2015. The district filed an amended reorganization plan July 21, as well as responses to objections by AMBAC Assurance Corp. and U.S. Bank, which are insurer and trustee, respectively, on some of the outstanding debt. The two parties had objected to the district’s disclosure statement, a document which is intended to give creditors enough information about the debtor to make an informed decision about a proposed plan of readjustment.


AMBAC’s objection centered on the question of whether the proposed plan, including a sale of the hospital for $13 million, complies with California law. Under the law, AMBAC contends, the attorney general maintains oversight over such a sale and the disclosure statement contains no information about whether or not the the Attorney General has been contacted by the district in connection with the terms of Plan, or if the district has served the Attorney General with the disclosure statement and plan.

While the plan acknowledges the COPs holders have a first-lien right and proposes to repay them through a combination of the sale, special revenues, and through AMBAC, the district said in its own filing that its proposed sale complies with applicable laws and that the trustees objection that any terms of the COP documents cannot be impaired is untrue. While a secured claim cannot be impaired, the district’s attorneys argued, they may be altered in a bankruptcy proceeding. The district also rejected the trustee’s contention that the plan must get a yay or nay from the individual holders of both the 2004 and 2011 COPs, asserting instead that U.S. Bank is simply being lazy and trying to shift responsibility off of itself as the trustee.

“The Trustee simply prefers not to exercise the discretion afforded it under the operative trust documents, and wishes to shift the expense and burden to the District to solicit directly the underlying COPs,” the district argued.
The district asked the court to ignore arguments that question the legality of the reorganization plan because to do so while considering the disclosure statement would be improper.

“The court should therefore approve the first amended disclosure statement, allow creditors to vote on the plan, and consider the plan on its merits at a confirmation hearing,” the district contended.

The court has also received objections from investors and other interested parties contending to its decision to allow revenue from a 2004 voter-approved parcel tax to pay for some of the district’s ongoing expenses.

Another hearing is set for July 25.

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