Sumitomo sells debt in Brookfield’s Healthscope

Healthscope, the country’s second largest private hospital operator, is up for sale by owner Brookfield. Picture: iStock

Questions are starting to surface in the market over David Di Pilla’s real intentions for Healthscope after lender Sumitomo Mitsui Banking Corp sold its loan in the hospital operator.

The understanding is that only two groups were competing to buy the debt with a face value of about $100m from the Japanese lender that sold for between 40c and 50c in the dollar to Deutsche Bank, which was likely acting on behalf of another party.

One of the suitors was thought to be Mr Di Pilla’s HMC Capital while the other could be Bain Capital, which is known to have been running the ruler over Healthscope, although its identity was unclear.

Healthscope is the country’s second largest private hospital operator and Brookfield has now placed it on the market, as first revealed by this column, after just over 70 per cent of its lenders agreed to suspend interest payment requirements until May.

The remaining eight, owed $350m and including MUFG, Morgan Stanley and Sumitomo, - flagged as a seller by DataRoom last week - were against the move and have placed their loans on the market.

Mr Di Pilla has publicly stated that HMC Capital wants to buy Healthscope to protect the rents of one of his listed satellites, HealthCo Healthcare and Wellness REIT, which is one of Healthscope’s major landlords, and save the company.

Sources say he has indicated he would pay as little as 15c in the dollar for the group’s loans, but later, when news filtered out into the market that US funds were circling the debt and interest was strong, sources said he would pay up to 40c.

But one theory being discussed is one where perhaps Mr Di Pilla’s ultimate hope is that another fund buys Healthscope’s debt at a cheap price to gain ownership of the business.

In that case, the amount of debt owing would be less and it would be in a stronger position to pay the rent owing to its listed HealthCo fund.

Already, Healthscope has defaulted on rent payments to HealthCo and Mr Di Pilla is refusing to offer a reduction after earlier offering a rent holiday, as have its other landlord Northwest Healthcare Properties.

With respect to possible buyers of Healthscope, sources say the Australian health insurers are interested in taking a minority position only with another party.

Brookfield initially played hard ball with lenders, landlords and health insurers over its Healthscope investment, urging them to take a financial haircut.

But it has since softened its stance, with its top brass in North America accepting there is no longer any equity left in the business.

Many in the market are somewhat sympathetic to Brookfield given the growing staff costs and inflation facing the industry not fully reimbursed by funding from the government or insurers.

Yet critics of Brookfield say it entered a bidding war in 2019 to buy the business for $4.4bn and sold the properties, where 60 per cent of its earnings were spent on rents when the correct ratio should be closer to about 40 per cent.

A number of experienced and highly regarded healthcare executives have also left the business while under Brookfield’s management.

Meanwhile, in addition to Sumitomo, another lender, believed to be MUFG, is set to finalise a sale of Healthscope debt by the end of the week, say sources.