Steward Health Cleared For Hospital Sales, Settlement

Bankrupt hospital operator Steward Health Care made significant progress in its Chapter 11 case this week, receiving approval for a sale of three Florida hospitals and for a global settlement with creditors that will transfer management of 15 more facilities.

During hearings Tuesday and Wednesday, debtor attorney Ray C. Schrock of Weil Gotshal & Manges LLP said the global settlement, coupled with the Florida hospital sale, will put the debtor on course for a successful bankruptcy case that significantly reduces operational costs for the estate while keeping nearly 20 hospitals up and running.

“It puts the estate on a path where we can turn to negotiating a Chapter 11 plan and ensuring administrative solvency for the estates,” Schrock told the court.

“We are certain this is the path we have to pursue in order to maximize value for stakeholders,” he said.

The settlement will see new managers come into the 15 hospitals located in Arizona, Texas, Louisiana, Ohio and Southern Florida to take over running the facilities and assuming the costs of doing so, according to the debtor. Steward will transition out of its operational obligations in the next few weeks and afterward will work toward completing sales of the facilities to the new managers outside of the normal bankruptcy sale processes under Section 363.

Medical Properties Trust, the landlord for the transitioning hospitals, has agreed to the settlement in exchange for a release of claims against the entity that could be pursued by the estate or the official committee of unsecured creditors. The committee supports the settlement, and the debtor has assured that in exchange for granting the release and streamlining the transition process, recoveries for unsecured creditors will be much higher under an eventual Chapter 11 plan.

The sale of three hospitals on Florida’s Space Coast dovetails into the settlement by providing $395 million from the $460 million sale price directly to the bankruptcy estate, which, combined with the significant reduction in operational costs borne by Steward, will dramatically ease the company’s liquidity crisis.

U.S. Bankruptcy Judge Christopher M. Lopez approved the sale transaction Tuesday afternoon, and the settlement agreement Wednesday morning.

The settlement emerged from last minute mediation overseen by Judge Lopez’s colleague on the Southern District of Texas bankruptcy bench, U.S. Bankruptcy Judge Marvin Isgur, who helped smooth out some of the issues that remained prior to Wednesday’s hearing, according to Schrock.

“With the progress over the last few weeks, it’s nothing short of remarkable that we’re here today,” Judge Lopez said.

Steward is represented by Gabriel A. Morgan, Clifford W. Carlson, Stephanie N. Morrison, Ray C. Schrock, Candace M. Arthur and David J. Cohen of Weil Gotshal & Manges LLP.

The official committee of unsecured creditors is represented by Ira S. Dizengoff, Brad M. Kahn, Avi E. Luft and Sarah Link Schultz of Akin Gump Strauss Hauer & Feld LLP.

Medical Properties Trust is represented by Daniel J. Ferretti of Baker Donelson Bearman Caldwell & Berkowitz PC, Thomas E. Patterson, Sasha M. Gurvitz and Nir Maoz of KTBS Law LLP and Emil A. Kleinhaus, Angela K. Herring and Michael H. Cassel of Wachtell Lipton Rosen & Katz.

The case is In re: Steward Health Care System LLC, case number 24-90213, in the U.S. Bankruptcy Court for the Southern District of Texas.

–Editing by Emily Kokoll and Alyssa Miller.