Arcon Healthcare, a Nashville-based operator of rural outpatient clinics, recently filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Nashville, citing poorly negotiated contracts with the real estate investment trusts from which it leases its facilities.
Arcon uses the REITs Capstone Capital Corp. in Birmingham, Ala., and Nationwide Health Properties in Newport Beach, Calif., to build its clinics. The REITs own the land and buildings.
Arcon's mistake was not insisting on a system of graduated monthly lease payments proportional to the operational stage of each new facility, said W. Hudson Connery Jr., Arcon's chief executive officer. He pointed out the difficulty of a new facility's generating money when physicians aren't on board and other items are not in place.
"We realized with our operating experience in late 1997 that while our operations were maturing, we needed a (graduated leasing) structure similar to how apartment complexes are structured," Connery said.
Arcon unsuccessfully tried to renegotiate its contracts with the REITs this spring and then again late this summer.
Arcon paid the REITs a regular monthly payment that it found it couldn't meet. Arcon owes the two REITs about $50 million, Connery said. Connery would not provide specific financial figures for Arcon, a privately held for-profit company
Arcon was begun in 1995 by Connery, a former executive of Healthtrust, the hospital chain that was bought in 1995 by Nashville-based Columbia/HCA Healthcare Corp. Connery was Healthtrust's chief operating officer.
Arcon owns nine clinics in rural or suburban markets in five states. The facilities are still operating, although the company hasn't moved ahead on any new construction projects.
The company's owners include Connery; investment firm Warburg Pincus, based in New York; and venture capital firms New Enterprise Associates, Baltimore, and Coleman Swenson Hoffman Booth, Franklin, Tenn.
A Capstone Capital spokesman would not comment on the pending bankruptcy proceedings. A Nationwide representative could not be reached for comment.
Arcon's attorney, Wallace Dietz, said the company had renegotiated a lease agreement with Capstone but couldn't proceed further because Nationwide hadn't agreed to the new payment schedule. Arcon would like a uniform deal with both REITs, he said.