BRADENTON, Fla. – Bondholders owed millions they are unlikely to recoup plan to loan more money to a bankrupt Georgia hospital, keeping its doors open until an auction.

The move will provide a continuum of care, ensuring that the 140-bed Oconee Regional Medical Center continues to operate in rural Milledgeville after its parent, Oconee Regional Health Systems Inc., filed for Chapter 11 bankruptcy May 10.

Bondholders have agreed to provide a $5 million debtor-in-possession loan to the hospital, which is a 501(c)(3) nonprofit, to pay for operations as the case proceeds.

Offering a DIP loan is a common strategy for creditors to protect the extent of their losses, said a bankruptcy expect who projected that bondholders stand to recover about 20% of the nearly $30 million they are owed.

“This bankruptcy is playing out just about like other bankruptcy case involving a quick sale,” said bankruptcy attorney Noel Boeke, a partner at Holland & Knight LLP, who is not involved in the case. “There’s nothing unusual about any of this.”

By providing the DIP loan, he said bondholders are first in line to be repaid for the loan at the conclusion of the case and are in a better position to control the return on their bonds.

“The existing bondholders are behind the new DIP money,” he said. “It’s their only shot at getting cashed out.”

After reviewing expenses the hospital has told the court it expects to pay, Boeke said his back-of-the-envelope calculations suggest that bondholders could end up receiving as little as 20 cents on the dollar.

On Monday, bankruptcy court trustee Guy G. Gebhardt filed a motion requesting that the DIP financing be denied.

Gebhardt contends that the hospital has not budgeted adequate funds for trustee expenses and to pay for a patient ombudsman to monitor care at Oconee while the case is pending. Objections to the DIP loan must be filed by June 1.

U.S. Bankruptcy Judge Austin E. Carter will hold a final hearing on the loan June 5.

Before filing for reorganization, Oconee entered a stalking-horse asset purchase agreement with the nonprofit California-based Prime Healthcare for $12 million, a move designed to keep the central Georgia hospital open after the bankruptcy case concludes.

The hospital is in Milledgeville, which is the seat of Baldwin County and home to 45,000 residents.

Prime Healthcare has said it will not assume the hospital’s $29.3 million of outstanding bonds, although its bid is still subject to an auction overseen by the bankruptcy court.

The Baldwin County Hospital Authority issued $24.74 million of revenue bonds for Oconee in 1998 to finance a three-story expansion project, including a diagnostic treatment center and patient suites.

Of that amount, $21.5 million of principal and $506,290 in accrued interest was outstanding when the hospital filed for bankruptcy, according to court documents.

In 2016, the authority privately placed $7.25 million of bonds, of which the entire principal and accrued interest totaling $52,361 was outstanding.

The bonds are secured by liens and security interests on substantially all hospital assets, including property, equipment, contracts, revenues and accounts receivable.

Objections have been filed opposing the stalking-horse bid procedure Oconee plans to use to sell the hospital.

What has happened at Oconee Regional Medical Center is similar to the experience of some other rural hospitals in Georgia, according to interim Chief Executive Officer Steven Johnson.

“Our goal when we began this process over a year ago was to maintain a viable hospital here in Baldwin County,” Johnson said in a statement after hospital officials approved the stalking-horse bid. “We have accomplished that and, as a result, our community will continue to have access to quality care.”

Working with a finance team approved by bondholders, he said hospital officials chose Prime Healthcare, which owns and operates 44 acute care hospitals in 14 states.

Prime Healthcare obtained some of its hospitals through distressed sales in bankruptcy, including the Southern Regional Medical Center in Clayton County, Ga.

The 60-year-old Oconee is the only general acute-care hospital and skilled nursing unit in a 30-mile radius, and is the largest hospital serving a more than 4,000-square-mile area between Macon, Augusta, and Atlanta, Johnson said in a declaration filed with the bankruptcy court.

In the past year, Oconee had about 2,600 inpatient admissions and more than 33,000 emergency room visits.

The hospital has 500 employees.

Johnson said the hospital began to experience management and financial challenges during the recent recession.

Those stressors, he said, were compounded by the fact that 18.4% of the hospital’s service area is composed of people 65 or older and eligible for Medicare, whose patient costs are subject to Medicare discounts and write-offs.

“In recent years, over 75% of the [hospital’s] receipts were derived from Medicare, Medicaid, or managed Medicare/Medicaid patients,” Johnson said.

In addition, he said, Georgia did not expand Medicaid under the Affordable Care Act, a move that would have provided insurance coverage to most low-income adults.

Georgia has 309,000 residents who are uninsured, but could have qualified for Medicaid-gap coverage offered by the Patient Protection and Affordable Care Act signed into law in 2010 by President Barack Obama, according to the Kaiser Family Foundation.

Nearly 14% or 1.38 million of the state’s residents are uninsured.

“A great deal of emergency and other care provided by the debtors to the working poor remains uncompensated,” Johnson’s declaration said. “The debtors are not alone in their plight – many rural healthcare operators in Georgia and around the country face the same economic challenges.”

Since 2013, six rural hospitals in Georgia have closed. The Jenkins Medical Center in Millen plans to shut its doors in June, becoming the seventh.

Johnson said Oconee took steps to contain costs, including reducing the hospital’s labor force, ending matching contributions to employee retirement plans, and closing affiliated care centers.

“As 2015 came to a close, it became increasingly clear that the debtors needed a financial solution,” he said, adding that the hospital was in default on the 1998 bonds and other alternatives were needed to alleviate long-term financial challenges.

Working with a majority of bondholders and the bond trustee, U.S. Bank NA, Johnson said the investment banking firm Houlihan Lokey Capital Inc. was hired along with financial advisor Grant Thornton to evaluate strategic options.

They found no new financing alternatives in part because of the hospital’s outstanding debt, Johnson said.

Oconee’s board of directors ordered Houlihan Lokey and Grant Thornton to solicit interest in various transactions, a process that led to the agreement with Prime Healthcare and the subsequent bankruptcy filing.

If the DIP loan is approved June 5, the agreement with bondholders calls for the sale of the hospital to be approved by the court in less two months, and for the hospital’s bankruptcy plan of reorganization to be approved by Sept. 30.

Objections to the bidding and sale procedures have been filed by the unsecured creditors committee, Cigna HealthCare of Georgia Inc., and Navicent Health Inc.

Oconee Regional Health Systems Inc. filed for Chapter 11 in the U.S. Bankruptcy Court in Macon. The case number is 17-51005.

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