SAN FRANCISCO – A small health care district in Northern California, the Mendocino Coast Health Care District, is still slogging its way through Chapter 9 bankruptcy and hopes to exit this summer.

The district in Mendocino County, which runs a 25-bed hospital in Fort Bragg, filed for bankruptcy in October.

The district has $14 million of outstanding, insured revenue bond and general obligation bond debt.

“We still have no plan to impair bondholders,” said the district’s bankruptcy lawyer, Andrea Porter with Friedman & Springwater LLP in San Francisco. “We should be ready, I hope, to file a plan [of adjustment] in late spring or early summer.”

The district had more than 200 creditors and listed between $10 million and $50 million in possible liabilities in its bankruptcy petition.

As part of its effort to reduce its obligations, Mendocino Coast is trying to reject the hospital’s collective bargaining agreement with its employee union, a United Food and Commercial Workers local.

A hearing on the motion is set for July 9 in the U.S. Bankruptcy Court, Northern District of California in Santa Rosa.

“It’s critical for the hospital’s survival,” the hospital’s CEO Wayne Allen said in a recent statement, adding they are hoping to negotiate a new agreement with the union as soon as possible.

Allen said the district has a debt reduction goal of at least $3.6 million, which is its projected loss for the current fiscal year ending June 30.

Mendocino Coast 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.

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 also sold $2.87 million of insured revenue bonds in 2010 after the release of the audited financials.

Cal Mortgage insured the district’s outstanding revenue bonds. Financial Guaranty Insurance Co. insured the GO bonds, which are backed by a voter-approved property tax.

Porter said the district has continued to make its bond payments.

In November, Standard & Poor’s dropped its underlying rating on the district’s GO bonds to C with a stable outlook from CC as a result of the bankruptcy.

The state authorized creation of hospital districts to serve populations in remote areas or in poor urban areas that lack health care.

The Local Hospital District Law of 1946 allows independent districts to access funds, such as parcel tax revenue, to provide health care for those in need.

The Mendocino Coast Health Care District, formed in 1967, has joined a cast small health care districts in the state that have struggled in recent years while serving the small, low-income or rural communities, including a smaller group that 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.

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