Rival hospital operators are understood to be on stand by to take over the running of Healthscope, amid speculation that Brookfield may soon move to further distance itself from the country’s second largest private hospital operator.
But sources close to the private equity owner are playing down the prospect of a voluntary administration, fending off speculation it may be increasingly becoming an option.
While talk in the market suggests that Brookfield may be handing over the keys to Healthscope’s lenders, a Healthscope spokesman told this column: “Any notion of voluntary administration is false.”
They said Healthscope was continuing the discussions with its lenders, adding that Brookfield was committing more capital to Healthscope as it worked through industry funding issues.
Possible operators of Healthscope could be not-for-profit hospital service providers, or a private equity firm like Pacific Equity Partners, which owns the smaller rival private hospital operator Healthe Care.
It comes with chatter that Healthscope’s lenders are offloading positions in fear its financial situation may deteriorate.
While certain agreements only permit this happening if the company breaches debt covenants, the understanding is that lenders have the ability to trade debt among themselves at a discount.
Healthscope has 25 lenders – including the top four banks in Australia – which were 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.
Private equity owner Brookfield has been trying to convince health insurance providers to offer 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, and will require its customers to potentially to pay a top-up cost.
Healthscope was bought by Canadian private equity giant Brookfield for $4.4bn in 2019 and has been struggling with too much debt.
It cares for more than 650,000 patients annually.
Brookfield reached a refinancing deal with its lenders on its $1.6bn of debt earlier in the year, and as a result of that agreement the lenders continued to retain security over all the hospitals in the portfolio.
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; psychiatrists are admitting fewer inpatients as online consultations and work in clinics is considered more viable.
To make the deal more profitable at the time of its takeover, Brookfield sold its hospitals to Medical Properties and Northwest Healthcare Properties for about $2bn, and Medical Properties has onsold the assets to HMC Capital.
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.
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