Steward Health Care can now offer incentives to potential lenders during the system's bankruptcy process.
U.S. Bankruptcy Judge Christopher Lopez granted an emergency motion Monday that allows Steward to offer a commitment fee up to $6.75 million, or 3% of requested funds, to a third-party lender and up to $750,000 to reimburse one or more lenders for expenses they incur during due diligence, with a $250,000 cap per lender. Lenders can charge a commitment fee as compensation for committing to a loan agreement.
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The motion was filed Friday in the U.S. Bankruptcy Court for the Southern District Court of Texas.
Expense reimbursement and a commitment fee will ensure the search for debtor-in-possession financing is competitive — as lenders are more likely to show interest with these assurances — and Steward can secure the best possible funding terms, according to the Friday filing.
"It allows everyone to put their best cards on the table sooner rather than later, so we can get that leg of the case satisfied," Lopez said in court Monday.
Steward's landlord, Medical Properties Trust, approved debtor-in-possession financing last month for $75 million to keep healthcare operations going. Steward said it will run out of funds next week and is seeking an additional $225 million in financing. Medical Properties Trust has not indicated whether it plans to provide more funds, according to the filing.
Some of Steward's existing lenders pushed back on Friday's motion, considering it unnecessary, and filed a proposal Monday to instead provide Steward with an additional $25 million in financing.
Tyler Cowan, global head of restructuring and liability management at Lazard, an investment bank working with Steward, said he does not support the $25 million financing proposal and thinks Steward needs a longer-term solution for stability, not another Band-Aid.
Dallas-based Steward filed for Chapter 11 bankruptcy protection in May, following months of financial uncertainty. The for-profit system employs about 30,000 people, including 4,500 primary and specialty care physicians, across eight states.
Also on Monday, Lopez approved an amended sales timeline for Steward's assets. Bids for physician group Stewardship Health and all hospitals except for those in Florida and Texas must be submitted by June 24, with a July 11 sales hearing deadline. Bids on the remaining assets must be submitted by Aug. 12, with an Aug. 22 sales hearing deadline.
Steward said it has resolved previous objections to the timeline, including concerns brought by the Justice Department about UnitedHealth Group-owned Optum's bid for Stewardship Health.
