Healthscope sale faces new year delay as receiver wrestles with complex bids

Healthcare operator Calvary has formed a strategic alliance with Mater Hospital Group to buy parts of Healthscope.

Healthscope receiver McGrathNicol may push back the bidding deadline for the collapsed hospital operator into the new year, say sources.

Catholic provider Calvary and Pacific Equity Partners remain the strongest contenders so far in the complex auction that will likely result in a break-up of the business.

As earlier reported, not-for-profit healthcare operator Calvary has formed a strategic alliance with Mater Hospital Group to buy parts of the business which consists of about 37 hospitals.

The challenge for the receiver is pairing up bidders with different hospital assets and striking a deal that will appease both its lenders and landlords, which can evict Healthscope if they do not agree to the rental terms.

Who has the strongest say in the auction will come down to a legal argument, but sources say that landlords need to be onside, which may ultimately result in lenders taking a bigger haircut and landlords receiving a reduction to their rents that may not have been so steep if the financiers had all the sway.

A key focus for receivers is resetting the company to ensure it remains profitable.

Working for Calvary is Jefferies, while PEP is advised by Morgan Stanley.

PEP owns the country’s third largest for-profit private hospital operator Healthe, Care.

It expanded an initial offer beyond the 11 hospitals leased from landlord Northwest Healthcare REIT to include the National Capital Private Hospital and the Gold Coast Private Hospital – both considered to be among Healthscope’s premium assets.

The private equity firm is considering splitting its hospital acquisitions across two separate investment funds, depending on the final scope of its successful bids.

A challenge for the receiver is ensuring it can find a buyer for the unprofitable hospitals to ensure they stay open.

The receiver has already pushed back bid deadlines multiple times in the sale process as it and the bidders wrestle with complexities.

Final bids were most recently due around the beginning of November.

They are understood to be hoping to achieve a price of about $800m for the entire portfolio of 37 hospitals, with the Canberra and Gold Coast facilities likely accounting for about half of that amount combined.

Healthscope collapsed in May under the weight of $1.6bn in debt.

The company, purchased by Brookfield for $4.4bn in 2019, had its property portfolio (about 22 sites) sold to Northwest Healthcare and Medical Properties Trust for about $2bn combined to finance the original acquisition. Medical Properties subsequently sold its Healthscope holdings to HMC Capital.

Healthscope’s collapse comes amid pressures facing Australia’s private hospital industry. Operators are struggling with rising costs that the industry claims are not being recovered through higher payouts from health insurers.