Decline in cash, liquidity crisis
Casa Grande Regional Medical Center (CGRMC) is a nonprofit hospital based in Casa Grande, Arizona. CGRMC’s more than 700 full-time employees make it the city’s second-largest employer. With 170 physicians and 177 licensed beds, the hospital offers general medical, surgical care and specialty services, including physical therapy, behavioral health and sleep services, and urgent care.
CGRMC’s operating results had deteriorated, due in large part to changes in the Arizona Health Care Cost Containment System (the state’s Medicaid program) that included reductions in reimbursement rates, alterations to eligibility requirements, and increases in costs and Recovery Audit Contractor recoupments. The hospital was experiencing a dramatic decline in cash and a severe liquidity crisis.
WHAT THE TEAM DID
Grant Thornton LLP was engaged to address the center’s immediate needs: cash management, planning and forecasting. The firm became CGRMC’s financial adviser in order to pursue restructuring options, including an orderly sales process or potential Chapter 11 filing.
The Grant Thornton team first had to determine how much cash was actually available. Then they worked to re-establish credibility with the bondholders and reduce the immediate cash burn rate to avoid a free fall bankruptcy and fire sale or closure.
The team determined that the best option for ensuring the continuation of the hospital’s delivery of high-quality health care would be a sale to an established health system.
The most suitable buyer was Phoenix-based Banner Health, one of the country’s largest not-for-profit health care systems and the leading nonprofit provider of hospital services in the communities it serves. The sale needed to happen quickly, before the liquidity crisis forced the hospital to close. The sales process yielded promising leads, and it came down to two hospitals that were competing for the hospital’s assets. In order to keep the hospital afloat until the sale could be effectuated, the buyer would also need to provide financing.
Between the two hospitals, the one selected as the buyer made the best offer. It promised to continue all existing services, ongoing employment and capital commitments, and that a loan would be forgiven if the sale was completed. The loan forgiveness meant free cash as long as the deal closed. If the deal didn’t go through, the loan repayment would come from the sale to a new buyer.
As it was, the selected buyer required CGRMC to file for Chapter 11 so that its assets could be purchased in the bankruptcy process.
All in all, Grant Thornton provided the following services:
- Created a cash flow forecast to increase the sense of urgency, educate management, build credibility with bondholders and negotiate with key stakeholders
- Developed a vendor payment program to conserve cash and postpone filing
- Enhanced the transparency of client operations and the business to best react and respond to potential debtor-in-possession lenders and purchasers
- Identified approximately $1.5 million in cash that could be transferred to the hospital to maintain operations while other financing was located
- Developed support to alleviate FTC antitrust concerns and obtain a no-action ruling
- Worked with the buyer to provide prepetition bridge financing and payment for bankruptcy processing
- Executed an asset sale agreement for substantially all assets
- Helped resolve legal matters
- Assisted in the development of various filings, including first day motions, a reorganization plan, a disclosure statement, a statement of financial affairs, and a statement of assets and liabilities
Grant Thornton is currently acting as creditor trustee to resolve claims and make appropriate distributions from the post-confirmation trust.
Because a buyer was lined up beforehand, the bankruptcy period was remarkably short; from start to finish, it only took about four months.
The hospital continues to operate and has realized these benefits:
- It is part of a larger, better capitalized system, with significant capital improvements already completed and additional improvements planned.
- All creditors are expected to receive payment in full.
- Valuable employees stayed with the hospital.
- Charitable foundation assets were preserved.
And most importantly, patient care continued uninterrupted. Operations were unaffected, so for patients, the only visible changes are a dramatically improved infrastructure and a new logo.
Corporate Advisory & Restructuring Services
T +1 704 632 3540
Johnny J. Lee
Corporate Advisory & Restructuring Services
T +1 212 542 9778