State’s Steward exit plan is no sure thing, as landowners, creditors push back - The Boston Globe (2024)

The developments created fresh uncertainty for a sales process that began late last year and gained urgency after Dallas-based Steward filed for bankruptcy on May 6. Governor Maura Healey on Friday said the state helped engineer preliminary deals to sell St. Elizabeth’s and five other hospitals to health systems in Massachusetts and Rhode Island, promising the deals would be completed “in short order.”

“It’s unsettling to see these challenges to the hospital sales and eminent domain,” said Paul Hattis, senior fellow at the Lown Institute, a health care think tank. “It’s all about investment firms stopping the transition of the health system in Massachusetts to maximize their profits.”

Healey said last week that state officials were frustrated by the protracted sales talks and planned to take the St. Elizabeth’s property by eminent domain. Sharon Boyle, general counsel for the state Executive Office of Health and Human Services, sent a letter to Apollo saying the governor had determined the continued standoff in the hospital negotiations had created “a crisis that threatens the public health in Massachusetts,” endangering the lives of patients.

The so-called offer letter said the state would pay $4.5 million in compensation for the property, a sum it said was based on the bid of a third-party buyer on St. Elizabeth’s, the flagship Steward hospital. The facility sits on nearly 14 acres in Brighton Center, with an assessed value of more than $200 million, according to property records.

Boyle asked Apollo to respond to the offer by Tuesday at 11 a.m. or “the Commonwealth will assume that the offer has been rejected.” As of early afternoon Tuesday, a state spokesperson said the administration hadn’t received a response from Apollo, indicating state officials were bracing for a legal challenge from the New York-based buyout firm.

A spokesperson for Apollo declined to comment on its plans.

Under state law, the governor or the Governor’s Council must formally approve an “order of taking” and record it with the Suffolk County Registry of Deeds. Once it’s recorded, the property would pass to the state, which could then turn it over to Boston Medical Center to continue operating the hospital, pending a legal challenge.

Apollo would have up to three years to challenge the land-taking and would have the right to a trial by jury, according to legal experts. While the legal challenge would contest the stated reason for taking the land, the case would likely become a valuation dispute in which each side would be required to submit independent appraisals of the property. Even if the case is fast-tracked, it could take 18 to 24 months.

A more immediate obstacle to the hospitals changing hands came from a group of private credit companies that extended $575 million in loans to Steward before and after it filed for bankruptcy. The lenders said they have the right to block the sale of hospitals in Massachusetts and seven other states to ensure that the bulk of the profits don’t go to the property owners, according to its filing in US Bankruptcy Court in Houston.

Steward’s sale of its hospitals’ real estate in 2016 has been seen as the primary obstacle to the sales because it’s required bidders to negotiate with both the for-profit hospital system and the landowners, who have thus far failed to agree on how to divide proceeds from the sales.

The private credit firms, however, said their financial interests must be resolved before any of the hospitals can change hands.

Steward’s lenders weren’t identified in the court filing. But the hospital system said in June that it had obtained bankruptcy financing, enabling it to operate through the summer, from a consortium of five lenders: WhiteHorse Finance, Owl Creek Investments, MidOcean Credit Fund Management, Brigade Capital Management, and One Investment Management. Four of them were previous lenders.

In their filing, the lenders said they have collateral on their loans that includes hospital permits, vendor contracts, furniture, and medical equipment for operating rooms and emergency departments. Because these assets “have significant value” to hospital buyers, the lenders claimed a right to consent to purchase agreements, the filing said.

A spokesperson for Steward declined to comment on the filing.

Separately, in a lawsuit filed in the Houston court, Steward accused Medical Properties Trust, a real estate investment trust that bought its hospitals’ land and buildings eight years ago, of interfering with its efforts to sell the hospitals by speaking directly to bidders during the sales talks — something it said violated the terms of the bankruptcy.

While MPT originally bought the real estate, it later sold a 50 percent interest in its Massachusetts hospital properties to another firm, Macquarie Infrastructure Partners. Earlier this month, the landowners turned the property over to their mortgage lender, Apollo, though MPT continues to own Steward hospital properties in other states.

Steward’s filing said MPT had engaged in “calculated efforts to undermine the debtors’ sales process by attempting to siphon all value from the debtors’ estates and hospitals into its own coffers.”

MPT filed a motion asking the bankruptcy judge to dismiss Steward’s charges, calling them “irrelevant as a legal matter.” The motion said Steward “can be expected to lash out at MPT and try to blame MPT for the poor progress of these cases and the delays in the sale process.”

In a statement, the Alabama real estate firm said, “We categorically reject any accusation that MPT has interfered with Steward’s marketing and sales efforts — on the contrary, we have proactively worked with potential bidders to address real estate-related matters.”

The disputes among parties to the bankruptcy, which had been alluded to in court hearings in recent weeks, surfaced as bidders for the six Massachusetts hospitals worked to finalize asset purchase agreements. Bankruptcy Judge Christopher Lopez has scheduled a hearing Thursday to consider final approval of the sales.

It will be up to Lopez to weigh the merits of Steward’s and MPT’s claims, as well as those of Steward’s lenders, potentially delaying the push to transfer the Steward hospitals to new operators. Final hospital sales hearings have previously been scheduled and delayed five times.

Healey announced agreements in principle had been reached for Boston Medical Center to take over St. Elizabeth’s Medical Center and Good Samaritan Medical Center in Brockton; Lawrence General Hospital to acquire Holy Family Hospital in Methuen and Haverhill; and, Lifespan Health System of Providence to purchase St. Anne’s Hospital in Fall River and Morton Hospital in Taunton.

Two other Steward hospitals, Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer, are slated to close at the end of the month because they received no qualified bids, the governor said. Leaders in both communities have been pressing the Healey administration to take steps to save those hospitals.

Robert Weisman can be reached at robert.weisman@globe.com.