BRADENTON, Fla. – A rural Georgia hospital system is seeking bankruptcy protection after agreeing to a stalking-horse bid that could result in significant haircuts to bondholders.

Oconee Regional Medical Center officials voted to approve the sale for $12 million Wednesday, the same day the nonprofit hospital and its affiliates filed for Chapter 11 in the U.S. Bankruptcy Court in Macon.

Bondholders likely will be materially impaired by the deal, according to a notice posted on EMMA by bond trustee, U.S. Bank NA, two days after the bankruptcy was initiated.

Oconee had about $22.6 million of bonds as of fiscal 2015, its most recent audit. Most of the debt consists of term bonds due in 2022 and 2028.

The bonds were issued by the Baldwin County Hospital Authority in 1998.

According to other EMMA filings, Oconoee Regional Medical Center also privately placed $7.25 million of bonds in June 2016, with a March 31, 2017 maturity.

Principal payment was extended to April 30, according to a disclosure notice on EMMA.

S&P Global Ratings assigned D ratings to the debt in June 2016, after Oconee missed a debt service payment to bondholders.

The hospital agreed to sell its assets to the California-based Prime Healthcare Foundation, although the bid is subject to a competitive auction process by the bankruptcy court.

Prime Healthcare is a 501(c)3 public charity that owns 14 nonprofit, community-based hospitals, according to its website.

“If this transaction [with Prime Healthcare] is consummated in its current form, the primary consideration would include a cash payment to the authority and hospital parties of $12 million and the assumption of certain liabilities of the hospital parties,” the U.S. Bank notice said.

Prime Healthcare will not assume any liability for the bonds, according to the notice.

“The amount of proceeds from the proposed Prime Healthcare offer or any other disposition of the hospital assets that will be available for payment to bondholders is not known but will be subject to payment of or reserve for administrative costs of the bankruptcy proceedings, and is expected to result in a material impairment of the bonds,” the trustee said.

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC is representing U.S. Bank.

The hospital has asked the bankruptcy court for permission to borrow up to $5 million in debt through the issuance of taxable bonds to pay for bills pending confirmation of the sale.

The taxable bonds would be purchased by a financial institution that would have a first priority senior lien on all hospital assets.

Oconee Regional Medical Center’s main asset is a 140-bed hospital in Milledgeville, Ga.

In addition to the hospital, eight other affiliates were placed into bankruptcy.

The hospital’s attorneys, Bryan Cave LLP, asked for joint administration of the filings under case No. 17-51005.

According to the bankruptcy petition, Houlihan Lokey is the hospital’s investment banker and Grant Thornton is financial advisor.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.