Bondholders await Chapter 11 liquidation after Iowa hospital finalizes sale

A struggling Iowa hospital’s sale to its primary competitor through a bankruptcy proceeding has closed.

In a case filing by Iowa City-based Mercy Hospital, of all the hospital’s assets to the university and finalizing the asset purchase agreement. Under the terms of that agreement, the purchased assets exclude securities, investments, bond funds and other funds created by bond indentures and financial assurances, among other things. 

When the sale closed Jan. 31, the Iowa City-based university, which runs its own healthcare and hospital system, announced its assumption of the former Mercy Hospital’s operations and its renaming to University of Iowa Health Care Medical Center Downtown.

When Mercy served notice to its contract counterparties that it was assigning to the university the contracts and negotiating the relevant default cure amounts, 11 counterparties filed formal objections and others lodged informal objections with Mercy’s counsel, according to court documents. The court overruled their objections.

“Mercy Iowa City is appreciative of the University of Iowa’s collaboration and cooperation in preserving continuing care for Mercy’s patients and employment for its staff and physicians,” Mercy Chief Restructuring Officer Mark Toney said. “While the sale is not the end of the Mercy bankruptcy case, it is a major milestone.”

Moody’s Investors Service withdrew its Caa1 rating upon the bankruptcy filing. It had rated the hospital’s 2011 revenue bonds A2 when they were issued. The hospital’s 2018 revenue bonds, purchased by Preston Hollow, were unrated.