Mercy Iowa City has received approval to use funds from its philanthropic foundation, stating that it cannot remain operational without its help. “Without the additional liquidity provided by the foundation pursuant to the settlement, (Mercy) will be unable to maintain the hospital’s operations in the ordinary course through the consummation of their proposed sale,” stated […]
Mercy Iowa City has received approval to use funds from its philanthropic foundation, stating that it cannot remain operational without its help.“Without the additional liquidity provided by the foundation pursuant to the settlement, (Mercy) will be unable to maintain the hospital’s operations in the ordinary course through the consummation of their proposed sale,” stated a motion posted on Oct. 9.
Background
On July 24, Mercy investor Preston Hollow Community Capital and master trustee Computershare Trust petitioned the court to put the hospital into receivership, accusing Mercy of breaching contracts connected with $63 million it borrowed via publicly-issued bonds. On Aug. 7, Mercy and the University of Iowa signed a Letter of Intent stating that the University would purchase Mercy and its assets for $20 million. On Aug. 8, the Iowa Board of Regents moved to accept the University’s request to purchase Mercy Iowa City, following the hospital’s filing for Chapter 11 reorganization in the U.S. Bankruptcy Court in Iowa’s Northern District.Since the letter was signed, other parties expressed interest in acquiring Mercy, inducing an auction between bidders.
Funds a sticky issue
The use of these funds has remained a contentious issue between Mercy, the Mercy Foundation and bondholders over the last several weeks.In a court document, lawyers for Mercy said the hospital would have to expend its “limited time and financial resources” on “efforts which would be prohibitively time-consuming and expensive to the further detriment of (Mercy’s)’ estates and creditors.”
Risk to sale
A motion posted on Monday also stated that the unresolved foundation concerns could lead to a highly disputed cash collateral hearing, posing a potential risk to Mercy’s ongoing efforts to smoothly execute the sale of their operations to the winning bidder in the auction process.The foundation agreed to contribute “certain funds” in order to offset operational costs associated with facilitating the care, diagnosis, and treatment of Mercy IC patients. So far, the foundation has already contributed over $2 million – $1 million on Sept. 26 and $1,200,000 on Sept. 28. The funds do not include fees for financial advisors, counsel or investment bankers.
Auction postponed
The auction for Mercy Iowa City’s assets was originally scheduled for Oct. 4, but bidding was postponed indefinitely after agreements could not be reached between interested parties.On Oct. 4, bidders competed for Mercy’s assets at the law office of McDermott Will & Emery LLP in Chicago. After a long day of negotiations, it was announced that the auction would continue at a later date. No details were provided at the time, but an attorney for Mercy indicated that the auction will continue sometime this week.
