Healthscope hunts cash through sale and leaseback of equipment

Healthscope cares for over 650,000 patients annually. Picture: iStock

Embattled private hospital operator Healthscope is understood to have embarked on the sale and leaseback of its hospital equipment in an effort to get money through the door after prolonged negotiations with lenders.

The understanding is that the deal will give the group tens of millions of dollars as high staff costs and other challenges take their toll.

It comes after private equity owner Brookfield has been trying to convince health insurance providers to provide more funding and urged landlords to lower rents.

Recently Healthscope hit the headlines after breaking contracts with health insurer Bupa and the Australian Health Services Alliance, which have 4.1 million and 2.5 million members, respectively, after earlier reaching deals with Medibank, NIB and HCF.

The terminations will come into effect from February 20 for Bupa, and from March 4, 2025 for the AHSA funds.

Healthscope was bought by Canadian private equity giant Brookfield for $4.4bn in 2019 and has been struggling with too much debt.

Healthscope cares for over 650,000 patients annually.

While the move may force Bupa to the negotiating table, sources say that the risk is that the doctors operating out of Healthscope’s hospitals may take their services elsewhere.

Brookfield reached a refinancing deal with its lenders earlier in the year, and as a result of that deal, the lenders continued to retain security over all the hospitals in the portfolio.

Earlier, Brookfield had been angling to split the portfolio, in what was seen by some as an aggressive move to force its lenders to the negotiating table.

Brookfield would separate out the worse-performing health facilities, with expectations that it may then place those assets on the block.

That would leave the $1.6bn debt pile secured against fewer assets.

But now, even if some hospitals were sold or shut, Healthscope’s lenders would still have security over them.

About 40 per cent of Healthscope’s earnings are generated from about four or five hospitals.

The stronger performers are Norwest Private Hospital in Sydney and Knox Private Hospital in Victoria. Dorset Rehabilitation Centre, The Sydney Clinic and Mount Hospital in Perth are weaker performers.

Compounding the challenges for Healthscope is the fact that mental health inpatient services are under-utilised, with psychiatrists admitting fewer inpatients as online consultations are considered more viable.

Technology has also allowed many medical procedures to now happen in day surgeries, substantially reducing costs, while higher insurance premiums have also made private health insurance unaffordable for many.

Healthscope has 25 lenders, including the top four banks in Australia, owed about $1.6bn earlier in the year.

When purchased, Healthscope’s debt was said to equate to about five or six times its overall earnings.

To make the deal more profitable at the time, Brookfield sold its hospitals to Medical Properties and Northwest Healthcare Properties for about $2bn.

Medical Properties has since on-sold its hospitals to David Di Pilla’s HMC Capital for its listed healthcare real estate investment trust in a $1.2bn deal.

Brookfield also sold Healthscope’s New Zealand pathology business to NZ Super and Ontario Teachers’ Pension Plan for more than $NZ550m in 2020.

In 2022, Healthscope slashed more than 140 jobs from its 19,000-strong workforce.

HMC Capital last year reduced the rent on 11 hospital sites for Healthscope in return for greater rent increases in future.

This would see the rents increase by 4 per cent or more if inflation was more than that level rather than 2.5 per cent.

Moelis and FTI Consulting have been working with Healthscope on a restructuring, while the syndicate of lenders, including Australia’s top four banks, has hired Houlihan Lokey and McGrath Nicol.

Last year, DataRoom reported that Brookfield bought back about $250m debt in Healthscope, which had then undergone a $1.6bn refinancing.