Who better to purchase bankrupt assets than the people who put them into bankruptcy in the first place? That may have been the message coming out of the bankruptcy courts last week.
In two cases, co-founders of companies driven into bankruptcy by the financial implosion of their financier, National Century Financial Enterprises, moved toward buying their companies' assets back from bankruptcy auctions.
Attorney Paul Tuft, the co-founder and chairman of Doctors Community Healthcare Corp.; the company's executive vice president, Erich Mounce, and a group of investors and creditors submitted the winning bid for Doctors Community's four remaining hospitals at a Dec. 17 auction in Washington.
The $152.8 million purchase price for Hadley Memorial Hospital and Greater Southeast Community Hospital in Washington; Michael Reese Hospital and Medical Center in Chicago; and Pacifica Hospital of the Valley in Sun Valley, Calif., must be approved by a federal bankruptcy judge at a hearing to be scheduled for early next year.
Also last week, a U.S. Bankruptcy Court judge in Baltimore approved a $90 million bid on the assets of bankrupt PhyAmerica Physician Group, a physician practice management company. Miami physician and entrepreneur Steven Dresnick, a founder of one of the companies that later became Durham, N.C.-based PhyAmerica, and a White Plains, N.Y., investment management company, Resurgence Asset Management, submitted the winning bid in November.
Both Doctors Community and PhyAmerica filed for Chapter 11 bankruptcy protection from creditors after NCFE filed for bankruptcy protection in U.S. Bankruptcy Court in Columbus, Ohio, in November 2002, days after FBI agents raided its headquarters. Two NCFE officials have pleaded guilty to criminal charges and a federal investigation continues into an estimated $3 billion alleged accounting fraud. NCFE said in its bankruptcy filings that Doctors Community owed it more than $600 million, while Doctors Community filed a counterclaim stating that NCFE owed it $300 million.
Thomas Barry of the New York investment firm Cain Bros., who represents Doctors Community, said the four-day auction was competitive and spirited. Barry said Tuft's bid, which includes private equity investors and the assumption of certain liabilities, was only a few million dollars higher than the cumulative bid made by the highest bidders for the four individual hospitals.
"This process stands as testament that bankruptcy auctions work," Barry said.
The other bidders included Washington podiatrist Peter Shin, president of a long-term-care facility, who bid on Greater Southeast; Specialty Hospitals of America, which sought Hadley; a group of Chicago physicians who bid on Michael Reese; and Health Care REIT, which was part of the Tufts' bid but also bid separately to protect its $18 million mortgage on Pacifica.
Boston lawyer Thomas Reardon, whom the court appointed in July as Doctor's Community's chief restructuring officer, called the process "long and tortuous." Reardon said Tuft's proposal was scrutinized. "We're optimistic that they'll have the cash and wherewithal to move forward and provide the infrastructure and capital to do well," he said.
He pointed out that Greater Southeast, which lost its accreditation from the Joint Commission on Accreditation of Healthcare Organizations earlier this year, received a conditional accreditation last week. Reardon said Tuft and Mounce have learned from the previous failure of Doctors Community.
"I think they understand about the cost structures and the mistakes they made and are prepared to address those," he said. "Sometimes, when you get a second chance, you get religion."
Tuft, who once employed 10 of his relatives on the Doctors Community corporate payroll, spent millions on corporate jets and stayed in luxurious hotels, said he appreciates the opportunity he's been given. "You don't often get a second chance in life, but when you do, you want to make the best of it," he said.
PhyAmerica's new co-owner also predicts a bright future. "Our first order of business is to provide financial stability for the company and to provide a swift and smooth transition for the hospitals, physicians and employees who are the backbone of the company and the key to our success," Dresnick said in a statement. Dresnick will be the new company's chief executive officer.