Jackson Hospital bondholders offered less than 19% recovery

Jackson Hospital & Clinic, Alabama, bondholders are being offered what would be, at best, an 18.7% recovery for the par outstanding in the facility's Chapter 11 bankruptcy. 

Many of the bondholders participated in a bridge note and ServisFirst Bank provided a bridge loan. The reorganization is offering what would be, at best, a recovery of 22.9% of par for all these creditors. 

The percentages don't account for time value, since the existing bonds mature no later than 2036, and the securities debt holders receive would mature in 2041.

Currently $87.5 million of allowed secured claims exist from pre-bankruptcy petition secured parties. This consists of $8.7 million of bridge notes, $3.8 million of bridge loans, and $75 million of master trust indenture claims. The last category consists mainly of bonds but also includes a letter of credit. 

The $87.5 million class is to be paid through three means: a $2.5 million cash payment on the effective date of the bankruptcy, $7.5 million in unsecured senior notes and $10 million in unsecured junior notes. 

The senior notes will accrue 5% interest per year and mature 15 years from the effective date. Interest in the first five years following the effective date will be capitalized and added to outstanding principal balance. There will be no interest or principal payments in those years.

The debtors are expected to make cash payments for principal and interest to fully amortize the principal balance over a 20-year period following the initial five-year nonpayment period. 

The junior notes also will accrue 5% interest per year and will not pay interest or principal for the first five years. The notes will mature 15 years from the effective date at which time "any unpaid principal or accrued interest remaining … shall be automatically deemed fully satisfied, discharged, and extinguished without any further action by any party," according to the disclosure statement in the bankruptcy.

The $87.5 million class will get an overall recovery of 22.9% of par, assuming the full repayment of the junior notes. The Bridge Note Secured Parties, due 10% of the $87.5 million, would receive, at best, 21.3% of the class payout. The Bridge Loan Lender, due 4.3% of the $87.5 million, would receive, at best, 8.67% of the class payout. The Master Trust Indenture Secured Parties, mainly bondholders, with the largest par owed, would get, at best, 70% of the class payout.

The disclosure statement will be distributed to the hospital's creditors in the coming weeks and they will be allowed to vote on the plan of reorganization as part of the Chapter 11 bankruptcy. 

In addition to Class 3, which includes the bondholders, bridge note and bridge loan parties, there are six other voting classes in the bankruptcy.

At least one impaired class must vote in favor of the plan of reorganization in order for the judge to approve it. The case is being handled in the U.S. Bankruptcy Court for the Middle District of Alabama.

A deal was reached in the bankruptcy in late December.

The lead lawyer for the bondholders didn't immediately respond to a request for a comment.