PHOENIX - The bankrupt West Contra Costa Healthcare District's debt holders must vote on a new plan of adjustment by next month, a bankruptcy court has decided.
The district’s trustee, U.S. Bank, posted a notice to bondholders on the Municipal Securities Rulemaking Board's EMMA website late last week informing them of the court’s timetable, explaining the proposed plan of adjustment, and seeking a vote on it. U.S. Bank is not taking a position on how stakeholders should vote, but is encouraging them to make their voices heard after the court elected to move forward with the plan.
The district filed for Chapter 9 relief in October 2016 with $17.3 million of 2004 COPs and $39.7 million of 2011 COPs outstanding, having shuttered its only hospital in April 2015. The amended plan of adjustment, filed last month, hinges on a proposed sale of the hospital facility that has not closed and could fall through at any time.
Despite its officially neutral stance on how investors should vote on the plan, the trustee said in the notice that it plans to continue its legal objections to the plan and to advocate for better treatment of the certificate holders. The trustee raised several points in the EMMA notice that could cause concern for investors.
“On the effective date of the amended plan, which is projected to be Jan. 1, 2018,” the notice says, "the trustee would turn over all funds it is holding to the district, which would leave the trustee with zero funds. Thereafter, the trustee could never hold more funds than is necessary to make the next scheduled semiannual payment to Holders on the certificates. The trustee would have no reserve for payments to holders on the certificates or for the trustee’s fees and expenses.”
While the district’s projected collections of a special parcel tax and payments to date lead U.S. Bank to conclude that certificate holders could feasibly be made whole under the plan, the projections also assume the successful sale of the hospital facility in October. If the sale doesn’t close then, the district is in danger of running a cash deficit, the trustee said.
“The projections assume that the pending sale of the hospital will close in October 2017, and the district concedes that if the pending sale does not close, the amended plan ‘doesn’t work so well,’” U.S. Bank notified investors.
Some members of the public also feel left out in the cold by the proceedings, since they continue to pay a special tax and no longer receive any benefit from the out-of-business hospital. Some believe the legality of continuing to levy that tax under the ballot question that approved it, Measure D, would fail to stand up in court.
“Residents are paying a parcel tax, but no longer have a hospital or the healthcare services promised by the Measure D ballot language,” Contra Costa County resident and taxpayer advocate Wendy M. Lack told The Bond Buyer. “Elected officials and district creditors (most particularly bond investors) want the parcel tax to continue and, apparently, they expect taxpayers to continue to pay while getting nothing in return.”
The court set a Sept. 18 deadline for voting, with a Sept. 28 deadline for briefs in support or against the plan and an Oct. 12 target for a confirmation hearing.