BRADENTON, Fla. — The financially ailing Jackson Health System in South Florida could become the latest public nonprofit entity to be taken private despite an ongoing Securities and Exchange Commission inquiry believed to be related to bond disclosure issues.
The Boston-based Steward Health Care System LLC, an affiliate of the private-equity group Cerberus Capital Management LP, sent a nonbinding letter of interest on Monday to the board that oversees Jackson, a publicly supported six-hospital system with 2,482 licensed hospital and nursing home beds.
The letter, signed by Steward chief executive officer Ralph de la Torre, said his firm "envisions a transaction" that takes over Jackson's operational risks by acquiring its property and facilities, invests $600 million in capital, and absorbs liabilities, including current losses and turnaround expenses, and $500 million in debt.
The $500 million includes $376.4 million of outstanding revenue bonds with final maturity in 2039 that were sold under Miami-Dade County's credit. The bonds are secured by a half-cent sales tax levied for the hospital system that provides indigent care and by a pledge by the county to use non-ad valorem revenues to meet reserve requirements if necessary.
Miami-Dade County finance officials could not be reached for comment about how the transaction might affect the outstanding debt. Jackson also uses part of the tax and other assistance from the county for operations.
County Mayor Carlos Alvarez said in a statement that any proposal to sell Jackson should be reviewed by the hospital's administrators and board, county commissioners, and "ultimately, the people of Miami-Dade."
"It is encouraging to see that independent health care providers understand the value of Jackson — both the medicine its physicians practice and the role it plays in our community," Alvarez said. "The most important priority must be the preservation of Jackson's public mission."
The letter by de la Torre said the proposed acquisition, which is still subject to due diligence and a final proposal, would include a "guarantee that debt-service obligations will continue to be met."
Steward Health Care System was formed by Cerberus to run the formerly public Caritas Christi Health Care.
The six-hospital Caritas system was purchased in November for $895 million, a price that included assumption of pension obligations, the repayment of debt, and funding for new capital projects. Caritas retained its name.
Robert Fraiman, president of Cain Brothers & Co., was financial adviser on the Caritas deal. He was traveling Wednesday and could not be reached. Steward officials could not be reached for further details about the Jackson offer.
Jackson has suffered from rising costs and declining patient volumes. The system serves as the indigent care facility for South Florida, so it has seen worsening bad debt in the recent economic downturn, though Jackson has had financial problem over many years.
Early last year, the Miami-Dade County Commission voted to take over the system if the current board failed to rectify its current financial crisis. The county has continued to work with the hospital on a plan to reduce expenses.
Despite those efforts, Jackson has continued to lose money. Last month, officials said the hospital system faced a deficit as much as $100 million by the end of the fiscal year.
Jackson is expected to be out of cash by July, de la Torre's letter said. He urged Jackson's board to quickly approve a 60-day period for Steward to undertake due diligence and return with a firm purchase offer.
Though de la Torre cited Jackson's financial problems, there was no recognition of the ongoing SEC inquiry or whether it could be a factor somehow in a future buyout.
The SEC opened an investigation last April into an $83.3 million bond deal that Miami-Dade County sold in September 2009 on behalf of Jackson.
The agency requested that system officials turn over a host of documents and communications, including those pertaining to the 2009 bond issue, as well as financial statements, projected operating deficits, information about patient accounts, internal revenue projections, and audits.
No further information about the SEC inquiry has been released.