June 15, 2024

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Quorum’s 24 Hospitals Face Bankruptcy Amid Covid-19 Pressure

(Bloomberg) — Quorum Health Corp., the operator of two dozen hospitals in 14 states, is preparing for a potential bankruptcy filing as the looming flood of coronavirus patients puts pressure on the already shaky finances of health-care providers throughout the U.S. The stock lost about a third of its value.

Management has been negotiating with stakeholders on a variety of possible deals, according to people with knowledge of the company’s plans, who asked not to be named discussing private negotiations. At the same time, Quorum is preparing Chapter 11 plans as hope fades for an out-of-court solution, the people said. No decision has been made, and the outcome could still change.

The chain’s dilemma may be just the beginning of a wave of trouble for American hospitals, especially in less populated areas like the ones served by Quorum. Even before the coronavirus hit, hospitals have been losing profitable elective procedures to outpatient facilities while still handling patients who lack good insurance.

Now as medical centers cancel optional treatments to spare resources for coronavirus patients, their slim revenue margins are being further squeezed, and federal relief may not be quick or abundant enough to save them. More than 30 facilities went bankrupt last year.

Quorum is “engaged in constructive conversations” with debt holders regarding a potential recapitalization or reorganization, Chief Executive Officer Robert Fish said in a statement to Bloomberg. “Regardless of the path forward the company chooses, Quorum Health and its hospitals will continue to maintain all operations without any interruption to service.”

The company was created in 2016 through a spinoff of 38 hospitals from Community Health Systems Inc., another troubled operator. Based in Brentwood, Tennessee, it now operates 24 facilities with about 2,000 beds in rural and mid-sized markets, including many in the South and Midwest where the spread of virus is now ramping up.

The company earlier this week said it was delaying filing its annual report to focus on creditor negotiations, which it said “diverted significant management time and internal resources from the company’s normal processes.”

Quorum hasn’t posted an annual profit since the spinoff, and investors have long pressured the company to make changes as its finances suffered. Its unsecured bonds due in 2023 are rated deep into junk and sell for about 70 cents on the dollar.

Stakeholders include KKR & Co., York Capital Management Global Advisors LLC and Mudrick Capital Management. In a filing late last month, Mudrick expressed concern that the company hadn’t reached an agreement with lenders to avoid bankruptcy and said amending its existing credit agreement to provide a short-term bridge would be the best course of action.

KKR told Quorum late last year it was willing to lead a recapitalization that would restructure the company’s debt load and pay stockholders $1 a share. In March, KKR said such a buyout seemed off the table and that, if there was to be a deal, it would likely come with little or nothing for equity investors.

Quorum’s stock plunged 33% to 27 cents at 10:17 a.m on Friday. Its $400 million of 11.625% unsecured notes due in 2023 traded in early March at about 85 cents on the dollar, according to the Trace bond-price reporting service.

(Updates share drop in the final paragraph.)

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