November 2, 2020 – Further to an October 30th hearing, the Court hearing the LRGHealthcare cases issued a bidding procedures order approving (i) proposed bidding procedures for the sale of substantially all of the Debtors’ assets, (ii) the Debtors' stalking horse arrangements with Concord Hospital (the “Stalking Horse Bidder”), further to which the Stalking horse Bidder has agreed to pace the sale process with an up to $30.0mn bid and (iii) an auction/sale timetable culminating in a December 16th auction and a December 21st sale hearing [Docket No. 152].

On October 19, 2020, the Debtors filed a motion [Docket No. 45, which attaches the Concord Hospital Asset Purchase Agreement (the "APA")] requesting each of a bidding procedures order (now issued) and a sale order.

Key Terms of the Stalking Horse APA:

• Seller: LRGHealthcare, a New Hampshire not-for-profit corporation.
• Buyers: Concord Hospital, Inc., a New Hampshire not-for-profit corporation (“Concord”), Concord Hospital – Laconia, a New Hampshire not-for-profit corporation (“Concord Laconia”), Concord Hospital – Franklin, a New Hampshire not-for-profit corporation (“Concord Franklin”), Capital Region Development Corporation, a New Hampshire not-for-profit corporation (“CRDC”) and Capital Region Ventures Corporation, a New Hampshire not-for-profit corporation (“CRVC” and, together with Concord, Concord Laconia, Concord Franklin and CRDC, the “Buyers”).
• Purchase Price: The purchase price of the Acquired Assets shall be $30.0mn, subject to the terms, conditions and adjustments stated in the Stalking Horse Agreement (the “Purchase Price”). The Purchase Price shall consist of: (i) the Deposit; plus (ii) an amount required to conduct the orderly wind-down or dismissal of the Bankruptcy Case after the Closing, not to exceed five hundred thousand dollars ($500k) (or as otherwise approved by the Stalking Horse in its sole discretion); plus (iii) the Hired Employee PTO, plus (v) an amount (the “Cash Purchase Price”) equal to the total Purchase Price minus items (i)–(iii).
• Bidder Protections: Break-up fee of $1.1mn and mimimum bid increments of $100k.

Key Dates (these dates have all slipped about one week from those proposed)

• Bid Deadline: December 14, 2020
• Sale Objection Deadline: December 11, 2020
• Auction: December 16, 2020
• Sale Hearing: December 21, 2020

Background

Marketing Efforts and Proposed Sale to Concord Hospital 

The Debtor’s selection of the Stalking Horse Bidder follows a lengthy marketing period that began in early 2018, with those earlier efforts reaching out to 43 potential partners and resulting in five non-binding indications of interest. Several of those parties dropped out at the diligence stage; with one offer, reduced after diligence efforts, rejected by the Debtor’s lenders as representing “a below-par transaction.” The Debtor notes that “The majority of bidders approached cited LRGH’s large debt-load as the rate-limiting issue when it came time to place a bid or move forward in the process.”

In a declaration in support of the Chapter 11 filing (the “Donovan Declaration”) [Docket No. 8], the Debtor provides: “These efforts led LRGHealthcare to reach out to 43 potential partners and which resulted in five non-binding indications of interest in 2018. Due diligence led one partner to rescind its offer in October 2018 and a second withdrew from the process shortly thereafter. A third informed LRGHealthcare it was no longer interested in March 2019. After due diligence, the most viable initial offer was significantly reduced and was reliant on Debtor’s lenders agreeing to accept below par payments on the outstanding mortgage and other liabilities. Unfortunately, the Debtor’s lenders rejected the concept of a below-par offer when approached. The 10-month strategic partnership solicitation process, in which a comprehensive list of potentially buyers was exhausted, ultimately concluded without an interested bidder, leaving the Debtor in a financially and operationally unsustainable position.

The majority of bidders approached cited LRGHealthcare’s large debt-load as the rate-limiting issue when it came time to place a bid or move forward in the process. Despite those obstacles and after further marketing and solicitation efforts, LRGHealthcare eventually entered into a proposed purchase agreement with Concord Hospital to purchase substantially all of the Debtor’s assets.”

The Debtor’s requesting motion [Docket No. 45] adds, “Ultimately, with the assistance of Kaufman Hall, LRGH identified Concord Hospital, Inc. (the ‘Stalking Horse’) as a potential acquirer of LRGH’s assets. Over the past four months, LRGH and the Stalking Horse have engaged in significant arm’s-length negotiations for the sale of LRGH’s assets and post-petition financing to ensure that the Debtor can further market its assets and hope to obtain a higher or otherwise better bid at a public auction through a section 363 sale process. In light of the Debtor’s financial position, the only other alternative for the Debtor is to close its doors, which would result in the elimination of emergency services to an underserved community, the termination of hundreds of employees and virtually no recovery for any creditor constituency.

Notwithstanding its dire financial position, the Debtor’s agreement with the Stalking Horse subjects its offer for substantially all of the Debtor’s assets to a competitive, but quick, auction process. The Stalking Horse has spent considerable time, effort and expense, and as a result, the Stalking Horse has asked for bidder protection. The Debtor believes the Stalking Horse should receive the requested protections on the facts of this case for a number of reasons. These include the risk and expense that have already been incurred and also those to be incurred by the Stalking Horse as a result of the numerous approvals and concessions that will be required from governmental agencies other than this Court; approvals and concessions that, in some cases, this Court cannot compel. The Debtor also believes the timeline for this auction is appropriate on the facts and circumstances of this case, especially because of the limited funding available.”

About the Debtors

LRGHealthcare is a not-for-profit healthcare charitable trust operating Lakes Region General Hospital (“LRGH”), Franklin Regional Hospital (“FRH”), and numerous other affiliated medical practices and service programs. LRGH is a community based acute care facility with a licensed bed capacity of 137 beds, and FRH is a 25-bed critical access hospital with an additional 10-bed inpatient psychiatric unit. In 2002, Lakes Region Hospital Association and Franklin Regional Hospital Association merged, with the merged entity renamed LRGHealthcare.

LRGHealthcare employs approximately 1,401 full and part-time employees. In 2019, LRGHealthcare serviced approximately 3,917 inpatient admissions, 33,803 emergency room visits, and approximately 260,000 outpatient visits. The organization has up to 172 licensed beds and the capability to serve patients with various physical and mental health issues. In 2019, LRGHealthcare had net patient revenues of almost $206 million and an operating loss of approximately $20 million.

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