Houlihan Lokey, KordaMentha compete for Healthscope lender role

Banks are pitching this week for a role to help Healthscope lenders. Picture: iStock

Healthscope lenders have kicked off a beauty parade to find its adviser to assist in company negotiations, with high profile names in restructuring vying for the role this week.

DataRoom can reveal that pitching to win a position helping the syndicate of about 25 lenders are Houlihan Lokey, KordaMentha and McGrath Nicol, while Rothschild is also believed to be around the hoop.

This column has also learned that after Healthscope has pressed insurers for better funding terms, next on the list is landlords, which include HMC Capital’s interests and Northwest Healthcare.

DataRoom understands that Healthscope, which is owned by Canada’s Brookfield, will ask David Di Pilla’s HMC Capital for rent relief on poorer performing hospitals within its portfolio, and similar negotiations are likely to occur with Northwest, which manages the fund that owns the properties - 70 per cent by GIC and itself the remainder

HMC Capital sources last week said it had not had any talks about rents with Healthscope or Brookfield.

Also, the hope is that private health insurers will offer an increase in payments to Healthscope, higher than inflation to ease pressure on costs.

Rent agreements would remain on the stronger performing hospitals owned by Healthscope, such as Norwest Private Hospital in Sydney and Knox Private Hospital in Victoria, but cuts would be requested to those like the Dorset Rehabilitation Centre, The Sydney Clinic and Mount Hospital in Perth.

It comes after HMC Capital recently lifted valuations on the Healthscope property portfolio.

One possibility is that the negotiations involve a cut to rents in the short term for some further upside down the track, although overall, the rent paid would be less.

As earlier reported by DataRoom, it is understood that Healthscope is not in debt default, but financial pressure is building as it groans under $1.6bn of loans and industry costs remain high.

Hedge funds are circling, yet current financiers are not legally able to offload loans.

One view is should Brookfield’s Healthscope make any requests to lenders in the months ahead should the position change, the lenders may agree on the proviso they are released from their obligations to retain their debt holding.

A meeting with lenders was held on Friday to determine the “next step”, which could include a reorganisation of the business.

Lenders include Australia’s top four banks, Challenger and financiers out of Asia.

They already have law firm Ashurst offering assistance, as MA Moelis, FTI Consulting, and law firms Arnold Bloch Leibler and Emmett Law help Healthscope.

HMC Capital and its satellite fund Healthco Healthcare and Wellness REIT last year purchased half of Healthscope’s real estate portfolio from Medical Properties Trust for $1.2bn.

HMC Capital spun its own interests into wholesale funds, from which it collects a fee, with the rest owned by its satellite.

At the time of the deal, HMC Capital reduced the rent on 11 hospital sites for Healthscope that was at 2.5 per cent, and in return, future rents would increase by 4 per cent or more if inflation was more than that level.

The dilemma for a landlord is that if rents for the hospital sites are too high, the tenant may collapse, leaving the properties vacant.

About 40 per cent of Healthscope’s earnings were generated from about four or five hospitals with its stable of 38 hospitals.

The latest situation will be deja vu for David Di Pilla’s HMC Capital, which was also a landlord to the country’s largest radiology provider GenesisCare that entered Chapter 11 bankruptcy in the United States last year.

However, in that instance, the Australian arm of GenesisCare was performing strongly, and the business continued to pay rent.

Market observers are watching Mr DiPilla’s next move with intent, in what could involve a delicate balancing act between ensuring the tenant survives and protecting his company’s earnings stream and reputation so it can raising further funds for future acquisitions.