The dramatic move was revealed Tuesday at a US Bankruptcy Court hearing. After multiparty negotiations stretched through last weekend, MPT and Macquarie, whose rents on the properties were a major contributor to Steward’s financial stress, agreed to turn the portfolio over to their mortgage lender, Apollo Global Management.
Advertisem*nt
Steward’s financial spiral stemmed in part from its complex real estate structure. The for-profit company sold its land and hospital buildings eight years ago, netting a big cash payout but saddling the facilities with millions in rent obligations to MPT and Macquarie.
But the latest development effectively removes the longtime landlords from the ongoing hospital sales talks, simplifying negotiations between prospective buyers and Apollo, a Wall Street giant that manages assets of nearly $700 billion but is little known in Massachusetts.
Frequent squabbles between the two landlords and Apollo had been a roadblock in the sales talks during the bankruptcy proceedings. With a single negotiator now in place to hash out the future of the hospitals’ land and buildings, the parties see “significant progress,” Steward’s lawyer, David Cohen, told Houston bankruptcy Judge Christopher Lopez. He suggested all parties are now motivated to wrap up the sales talks by Friday.
But Emil Kleinhaus, a lawyer for MPT, added a cautionary note.
While agreeing “we are moving in a better direction,” he noted the landlords still must complete their agreement in principle with Apollo and “there are still some open points to get this agreement over the line.” He didn’t detail the open points or say how serious they were.
“This is not the resolution in Massachusetts that MPT would have chosen or preferred,” Kleinhaus told the judge. But he said the Alabama-based real estate firm was making concessions “to keep as many of these [Steward] hospitals open as possible.”
Advertisem*nt
Steward has qualified bids from prospective buyers of St. Elizabeth’s Medical Center in Brighton, Holy Family Hospital in Methuen and Haverhill, Good Samaritan Medical Center in Brockton, Morton Hospital in Taunton, and St. Anne’s Hospital in Fall River.
A long-term lease requiring rents totaling more than $100 million a year had left the Massachusetts hospitals with more than $2.4 billion in rent obligations through 2040. And, as among the largest creditors in the bankruptcy proceeding, the two landlords have played an outsize role in the sales talks with potential hospital buyers.
Steward said it did not receive any qualified bids for two of its hospitals, Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer. The judge last week approved a Steward plan to close both of those hospitals by the end of August, even as elected officials in Boston and other communities continue efforts to rescue them.
On Wednesday, the Boston City Council is set to vote on a resolution calling on the city to declare a public health emergency over the Carney closure. Councilors John FitzGerald and Ed Flynn, co-sponsors of the resolution, said they want the city and state to seize the property by eminent domain to keep the hospital operating if no bidders arise.
Meanwhile, Hugh McDonald, a lawyer for the Massachusetts Department of Health and Human Services and the state attorney general’s office, said that with the recent developments, state officials now expect the sales could be wrapped up in a matter of days.
Advertisem*nt
The progress was enough for Governor Maura Healey’s administration to modify a plan to offer about $30 million in bridge funding for the Steward hospitals, originally on the condition that purchase agreements were finalized by Tuesday. Now, with the deals still unfinished, the administration will advance $11.3 million of the funding this week.
A second tranche of $18.6 million will be paid on Aug. 16 — but only if the sales are completed by this Friday, according to the modified terms. Judge Lopez, who must sign off on any money flowing to Steward during the bankruptcy proceedings, approved the bridge funding Tuesday.
“This payment agreement represents the Commonwealth’s continued commitment to achieving the transition of the six remaining facilities to new operators,” McDonald told the bankruptcy judge.
But in a document filed with the court, the Healey administration said it reserved the right to terminate the funding if the sales talks fail and Steward converts its Chapter 11 bankruptcy filing to a Chapter 7 filing that would precipitate liquidation of all its assets.
The urgency of the negotiations cast a spotlight on Apollo, which thus far hasn’t commented on its involvement in the Steward bankruptcy case. Other parties say Apollo has taken a leading role for weeks in the talks about lease terms with prospective hospital buyers while also bickering with the landlords, a dynamic described by a Steward attorney last week as an “intra-stakeholder dispute.”
Judge Lopez last week nullified the lease Steward negotiated with the landlords in 2016 requiring the hospitals to pay more than $100 million in annual rents. Even before it filed for bankruptcy on May 6, the cash-strapped hospital systems had stopped paying rent, curbing the flow of cash the landowners.
Advertisem*nt
The parties didn’t disclose financial terms of the agreement in principal transferring the hospital properties to Apollo. Nor did they say whether Apollo planned to retain the properties and collect rents or sell the land and buildings to new hospital operators. Some outside analysts have said the hospital rents would have be cut by as much as 40 percent for bidders to finalize purchase of the hospitals.
Steward, which is selling its hospitals and its doctors group to pay off its scores of creditors, is expected to run out of money from its bankruptcy loans within weeks. The bridge funding can be used only for the hospitals’ operating expenses until they can be sold, not for executive compensation or rental payments, according to the funding terms.
The money is an advance from MassHealth, the state Medicaid program, based on the hospitals’ participation in several quality and equity incentive programs the state sponsors for low-income patients.
Steward’s lawyer, Cohen, also told the judge the company had drawn multiple bids for its physicians network, Stewardship Health, which manages hundreds of primary care doctors and other clinicians in Massachusetts and seven other states. He said Steward was planning to conduct an auction on Tuesday. The company has yet to identify the bidders for its hospitals or the doctors network.
Niki Griswold of the Globe staff contributed to this story.
Robert Weisman can be reached at robert.weisman@globe.com.
