The Pontiac City Council last week approved the sale for $2 million of the North Oakland Medical Center to a group of physicians who will operate the financially strapped facility as a private for-profit entity.
The approval allows the medical center to sever its costly lease with the city and reorganize its debt. Still unclear is the fate of roughly $38 million of outstanding debt issued in 1993. The hospital has defaulted on payments owed to the bond trustee to cover debt service.
Under the agreement approved last week, the Oakland Physicians Medical Center LLC would acquire a 60% ownership stake in the facility. Two other Michigan facilities, the McLaren Health Care Corp. and Crittenton Hospital, would acquire 30%, according to reports. Another 5% would go to the city and the remaining 5% would be offered to hospital employees.
The 377-bed medical center, which lost around $20 million between 2001 and 2005, has been pushing the city to approve the sale for months. In 2007 it made only part of its lease payment to the city and said it would not be able to make future payments.
The center also failed to make its Jan. 15 and April 15 payments owed to bond trustee US Bank NA to cover debt service totaling $3.77 million in 2008, according to trustee documents. Bondholders receive payments on Feb. 1 and Aug. 1, and US Bank made the Feb. 1 payment with prior installments paid by the hospital and supplemented a shortage with a reserve account, according to documents. The notice also indicates that $3.2 million remains in the reserve and the trustee holds another $484,000 in other funds.
The $38 million in debt has proved to be a main stumbling block during negotiations, officers said.