Healthscope lenders to drive operation to rescue hospitals

Healthscope’s North American owner has effectively ceded control of the ailing healthcare operator to its lenders who are looking for ways to get it back on its feet.

Healthscope has invited lenders to take positions on its board as it looks to find a route to survival. Picture: 60 Minutes

The country’s second largest private hospital operator, Healthscope, has effectively ceded control to its lenders, inviting them to take up positions on the board as it pitches for its survival.

The move by the Brookfield-owned company leaves the company’s lenders in the driving seat as they seek to advance a sale process which had drawn interest from rival operators, including Ramsay Health Care and St John of God, as well as financial buyers.

Healthscope has urged its disparate lending syndicate to back the move and avoid a costly and potentially damaging move into receivership. The company had held the majority of them together but a forbearance agreement ran out on Monday and they refused to extend it.

There were originally close to 30 lenders but eight mainly offshore lenders did not sign up to the original agreement, enabling the sale of debt to players including David Di Pilla’s HMC Capital.

But Mr Di Pilla has abandoned earlier plans to potentially buy out the hospital operator and keep it together, selling his interests in the debt after saying the company would not put equity into any deal.

Investors have welcomed HMC going cold on a bid for the hospital operator, driving the funds manager’s shares up since it revealed it would not back a deal at the Macquarie Australia Conference last week. HMC shares are up $4.85 to $5.38 since the announcement.

Healthscope’s $1.6bn debt pile has traded at a steep discount of around 50c in the dollar, and buyers have included global players like Canyon Partners, Elliott Management and Polus Capital.

Brookfield’s exit leaves these deep-pocketed international debt houses in the driving seat as the future of the hospital operator, which has struggled under a heavy debt load, amid fraught relationships with private health insurers and unsustainable rentals.

Healthscope chief executive Tino La Spina said the deal would set the company path to an orderly and solvent transition.

HMC had weighed a bid for the operator, partly because its listed and unlisted healthcare funds own 11 Healthscope hospitals, and the landlord has not received full rent. HMC has taken a hard line on the rent payment, while the other major landlord, Canada’s Northwest Healthcare Properties REIT, had been more accommodating, industry sources said.

The shift to lender control comes as a sales process for the group, being run by MA Financial, comes to a head, with options including a carve-up of the operator being considered. Hospital closures are considered less likely, though some industry players have said they are on the cards.

Healthscope said it had presented the company’s lenders and their advisers with a plan for a smooth, orderly and solvent transition of board control of the group and a transfer of ownership ahead of the completion of the sale and recapitalisation process.

Healthscope added that it “strongly recommends” to lenders the plan presented over any lender-led enforcement or process. Calling in receivers would be both disruptive and costly, with lasting damage potentially inflicted across the industry, senior sources said.

Under the plan, lenders will have the ability to appoint their own nominees to the board as soon as they are in a position to do so.

The company has sent all lenders a letter detailing and committing to a transition of control to lenders. This can be undertaken without the need for costly enforcement proceedings or any lender-led process and with minimal disruption for staff or hospital operations.

An orderly transition will also provide assurance to the multiple parties that have expressed interest in acquiring the business and enable Healthscope’s sale process to move forward efficiently.

The transition plan has been backed by Healthscope’s management and supported by key stakeholders. The company has a strong cash balance of more than $110m, and is engaged with its shifting lender group, with more debt holders expected to sell out at a discount.

Healthscope chief executive Tino La Spina said the changes “clear the path to an orderly and solvent transition without further disruption in the best interests of every one of our stakeholders, and allow us to continue business as usual”.

Originally published as Healthscope lenders to drive operation to rescue hospitals