A Newark, N.J., bankruptcy court Tuesday approved St. Mary’s Hospital’s reorganization plan, a move that will now require New Jersey to pay $1.5 million per year through 2027 to help meet debt service payments on state contract bonds sold on behalf of the health care provider.
Under the reorganization plan, St. Mary’s will pay the New Jersey Health Care Facility Financing Authority $2.2 million annually until 2040 to help pay down the $45 million of state contract bonds it sold in 2007 as conduit issuer. That $2.2 million payment falls short of the $3.69 million of principal and interest payments owed each year on the Series 2007 bonds. New Jersey will now pay approximately $1.5 million each year, subject to appropriation, from its general fund to make up the shortfall.
Over time, the Garden State will regain the money because the bonds will mature in 2027 while St. Mary’s will continue its $2.2 million yearly payment until 2040.
“It’s approximately the same amount of money in total, but on a present-value basis it is, of course, a little less,” said Mark Hopkins, the authority’s executive director. “And the state will have to — subject to appropriation — come out of pocket the difference of approximately $1.5 million a year.”
The next payment to investors is on March 1 for $2.6 million. The final amount has yet to be pinned down, but the authority anticipates receiving a payment from St. Mary’s to cover nearly all of that payment to bondholders. It will be the first payment St. Mary’s has made to the authority since declaring bankruptcy on March 9, 2009. On Sept. 1, the state made a $1.09 million payment to investors without funds from St. Mary’s.
The authority and Bank of New York Mellon, as master trustee, voted last week to approve the reorganization plan, including the $2.2 million yearly payments. Bondholders were not allowed to vote on the decision, as ultimately it is the state that is responsible for the debt, regardless of whether St. Mary’s pays the authority or not.
Hopkins believes the reorganization plan was the best option as the authority had received payment offers from St. Mary’s that were lower than $2.2 billion. The bankruptcy has gone on for almost a year and during that time St. Mary’s has brought on a new president and chief executive officer, which Hopkins believes is a benefit. In addition, medical professionals have remained faithful as a whole and staff members have agreed to concessions.
“It seems like everyone is working together and we didn’t want to ruin that momentum that the hospital had,” Hopkins said.
The Series 2007 bonds are part of New Jersey’s Hospital Asset Transformation Program. The state secures bonds sold within the program as state contract bonds. The program aims to reduce vacant hospital beds throughout the state by encouraging health care providers to merge or acquire other hospitals, thereby closing down acute-care facilities.
“This financing was meant to be revenue neutral to the state in that it would collect from St. Mary’s and pay the bonds out of that,” Hopkins said. “Of course the backing means that if they can’t collect the money from St. Mary’s, they will pay the bonds subject to appropriation.”