Debt Repayment Is in Doubt After Filing by Hospital
A bankruptcy filing by a Los Angeles hospital that relied on financing from National Century Financial Enterprises Inc. leaves future payments on almost $19 million in municipal debt in doubt, a trustee for bondholders said.
Granada Hills Community Hospital, which borrowed from National Century this year, filed for bankruptcy protection Nov. 26, and monthly principal and interest payments haven’t been met since September, a Dec. 2 notice to investors from U.S. Bank said.
The notice said U.S. Bank “can give no assurances” on the timing or amount of future payments to bondholders or whether the hospital, which remains open, will be able to continue operating.
The Granada Hills hospital, a 129-bed facility, is one of several health-care providers that lost money when Dublin, Ohio-based National Century filed for bankruptcy protection last month. National Century bought unpaid bills from health-care providers and packaged them for sale as bonds.
The nonprofit foundation that owns the Granada Hills hospital said its bankruptcy filing was linked to a filing by Doctors Community Healthcare Corp., a privately held Scottsdale, Ariz., company that managed the facility, according to U.S. Bank. Five units of Doctors Community -- two hospitals in Washington, one in Chicago and two others in Southern California -- also filed for bankruptcy protection.
The Granada Hills hospital borrowed from National Century as part of a plan to boost cash reserves. The San Bernardino Associated Communities Financing Authority sold $18.7 million in municipal bonds for the hospital in 1997.
Hospitals that sought help from National Century “really needed an infusion of cash,” said Craig Kornett, an analyst at Fitch Ratings. Selling receivables was “one of the last avenues they’d look at.” Fitch this month reviewed nonprofit hospitals it rated and concluded their use of National Century was “extremely limited, if not nonexistent,” he said.
Standard & Poor’s in May 2001 cut the credit rating on the Granada Hills bonds to D after a principal payment was missed. S&P; withdrew the rating last month, citing a lack of timely financial data.
A bond reserve fund backing the debt was fully funded at $1.57 million before a draw of about $5,000 was needed to make the November interest payment, U.S. Bank said previously.
