New York hedge fund Deerfield Management, a healthcare-only investment firm with over $8.0 billion under management, has purchased outstanding bank debt from Adeptus Health, Inc., and expects to provide additional financing, along with operational and managerial support, to Adeptus pursuant to an anticipated Chapter 11 bankruptcy process.
According to an April 3 filing with the Securities & Exchange Commission, outstanding loans totaled $212.7 million and include bridge loans provided to the company’s subsidiary First Choice ER LLC with Bank of America acting as administrative agent. Adeptus is owned by Medical Properties Trust, Inc.
According to a report from The Dallas Morning News Adeptus operates more than 90 facilities in five states, under the name First Choice Emergency Room. Deerfield will also assume master leases of facilities in Texas, Colorado, Arizona and Ohio.
The agreement between MPT and Deerfield provides for the pre-bankruptcy payment of 100% of April rent, assumption of approximately 80% of the master leased facilities at current rental rates, re-leasing of approximately 5% of the facilities to the former Louisiana venture partner and the sale or re-leasing of certain Texas facilities to new operators. MPT will provide a one-time rental credit of approximately $3.1 million during the 12 months commencing upon bankruptcy exit.
“We are very pleased, but not surprised, at the number of sophisticated and well capitalized investors and operators that have been attracted to our market-dominant portfolio of free-standing emergency facilities,” said Edward K. Aldag, Jr., MPT’s Chairman, President and Chief Executive. “These investors, and particularly the Deerfield team, recognize the improvements to patient care and outcomes and the lower overall costs that free standing emergency facilities provide to market-dominant hospital systems. Our unique master lease structure, specialized underwriting knowledge and industry foresight equipped MPT to achieve the outstanding results that we expect from this agreement: we will fully receive our April rent; during the restructuring we will continue to be fully paid our contractual rent for all facilities; and upon completion of the restructuring there will be no further rental or other concessions on the leases assumed.”
The company simultaneously announced that, in cooperation with Adeptus, MPT’s Louisiana free standing emergency facilities (with a total budgeted investment of up to approximately $24.0 million) have been re-leased to Ochsner Clinic Foundation, the preeminent health care system in the New Orleans area. The Ochsner leases provide for 15-year initial terms with a 9.2% average minimum lease rate based on MPT’s total development and construction cost; Ochsner has certain purchase options during the lease term based generally on the greater of MPT’s total development cost and fair value.
MPT expects to re-lease or sell certain Texas facilities representing approximately 15% of the total existing Adeptus master lease value. These transitions are expected to be completed by the fourth quarter of 2018 and Adeptus will continue to pay contractual rent until the earlier of (a) transition to a new operator is complete or (b) an agreed future date. The agreed future date for approximately 60 percent of the Transitional Facilities is one year following bankruptcy exit and the remainder Transitional Facilities have agreed future dates of 90 days post-bankruptcy exit.