Mercy Iowa City gives details on settlement, auction results

By Sarah Lizee

Olympia, Wash., Oct. 11 – Mercy Iowa City gave the terms of a proposed settlement with its creditors and the results of the auction for its hospital and clinic assets, according to documents filed with the U.S. Bankruptcy Court for the Northern District of Iowa.

Following an auction that ended on Tuesday, the company announced that it has designated the bid submitted by investors led by Preston Hollow Community Capital, Inc. as bondholder representative, alongside its operational partner, American Health Systems, as a 501(c)(3) operator, as the winning bidder for the assets.

The company said that since starting the Chapter 11 process, it has been working to address several concerns raised by various parties-in-interest, including bondholder representatives Computershare Trust Co., NA and Preston Hollow, the official committee of unsecured creditors and the Mercy Hospital Foundation.

The concerns are mainly about the role of the foundation, and whether and to what extent its funds could be used to assist the debtors to reach a sale closing date.

The issues, to the extent not resolved, would likely culminate in a heavily contested cash collateral hearing that could potentially jeopardize the current efforts of the debtors to effectuate an orderly sale of operations to the winning bidder during the auction process, the company said.

Mercy said the settlement provides a necessary infusion into the debtors’ estates of “unrestricted” funds currently held by the foundation to help offset the hospital’s operating expenses during the pendency of the Chapter 11 cases.

It also resolves several contested issues previously raised by the parties, including the objections to the debtors’ proposed use of cash collateral on a final basis filed by the committee and the bondholder representatives, to the extent those objections argue that the foundation funds should be made available to the debtors’ estates.

“Without the additional liquidity provided by the foundation pursuant to the settlement, the debtors will be unable to maintain the hospital’s operations in the ordinary course through the consummation of their proposed sale,” the company said in court documents.

“Additionally, absent the global resolutions contemplated by the settlement, the debtors will be forced to expend their already limited time and financial resources to address contested issues raised by the bondholder representatives, the committee, and the foundation, efforts which would be prohibitively time-consuming and expensive to the further detriment of the debtors’ estates and creditors.”

The Iowa City-based hospital filed Chapter 11 bankruptcy on Aug. 7 under case number 23-00623.

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