The largest hospital in Syracuse, N.Y., has a plan to re-emerge relatively unscathed after 18 months under the protection of the U.S. bankruptcy court, although its unsecured creditors stand to recoup as little as 15 cents on the dollar.
What's more, even though the hospital acknowledges it won't be able to retire entirely about $46 million in bond debt, Crouse Hospital already is thinking about taking on $24 million in new debt to help fund some capital improvements.
Earlier this month Crouse filed its long-awaited plan in U.S. Bankruptcy Court in Utica, N.Y., entering a final phase in a reorganization that officials hope will be wrapped up by year-end. The 418-bed hospital filed for Chapter 11 bankruptcy protection in February 2001, seeking breathing room from approximately $91 million in debt. At the time of the filing, Crouse officials blamed a litany of problems, including the clumsy conversion to a new billing system in preparation for Y2K.
Meanwhile, the board of directors of the Health Alliance of Central New York, the 3-year-old parent of Crouse and 259-bed Community-General Hospital of Greater Syracuse, voted last week to dissolve their affiliation, saying it was best for both financially distressed hospitals to go it alone, although Community-General was never part of the bankruptcy.
Under Crouse's reorganization plan, the hospital intends to fully reimburse its bankers-the secured creditors-but there's a hitch. Hospital officials want a five-year deferral on the principal to help fund the capital expenditures, including upgrading the operating rooms and intensive-care unit, said Robert Allen, a hospital spokesman. In total, the hospital has roughly $46 million in bond debt with approximately $25 million of that unsecured, he said.
Crouse needs some $67 million during the next five years for capital improvements, according to the plan.
The hospital likely would be able to take on new debt as long as it is willing to pay dearly for it, said Liz Sweeney, a director in healthcare ratings at Standard & Poor's. "It's never easy coming out of bankruptcy," Sweeney said. "They are going to have to try to sell themselves as a different organization than it was a year and a half ago."
Meanwhile, the unsecured creditors-primarily vendors and other suppliers-will receive a payment of $3 million, the equivalent of 15 cents on the dollar, Allen said. That payment could possibly grow to $5 million.
Crouse owes its neighbor, SUNY Upstate Medical University, $3.7 million for the salaries and administrative fees for medical residents practicing at Crouse, said Ben Moore, executive director of the state-run 356-bed hospital side of the SUNY Upstate system. That debt makes Upstate one of the biggest, if not the biggest, of the unsecured creditors. Last month SUNY called off collaboration talks with Crouse (Sept. 9, p. 18).
Fifteen cents on the dollar "is a big disappointment," Moore said. SUNY officials are reviewing everything with their legal counsel-the state attorney general-to decide "how to react to the plan," he added.
Crouse will look much the same after it emerges from bankruptcy, with no changes in programs or services and no big job cuts, Allen said. Nonstrategic real estate assets will be sold, such as a parking garage.
For the six months ended July 31, Crouse posted a $5 million loss on $121.8 million in revenue, including $2.4 million in restructuring fees, Sweeney said.
Bankruptcy law still requires the hospital to go through a disclosure hearing and confirmation hearing, during which the judge will set a bankruptcy exit date, according to an internal memo. The two hearings likely will occur over the next three months and will give creditors an opportunity to raise objections.