The defaulted issuer Jackson Hospital & Clinic of Birmingham, Alabama, is set to receive bridge loans from some of the holders of its bonds.
Investors participating in talks with the hospital have agreed to loan up to $22 million of bridge notes to the hospital, according to a posting to the Municipal Securities Rulemaking Board’s EMMA website.
The bridge loans will come in the form of senior notes to be issued as Tranches 1A for $5 million, 1B for $10 million, and 2 for $7 million and bear a 13% interest rate.
Additionally, purchasers of the notes will get 3% more in principal than they are investing.
In addition to the notes, the hospital has arranged a $3.5 million loan from ServisFirst Bank of Alabama.
Agreements between the participating bondholders and the hospital set out conditions for the sequential release of the note money to the hospital.
The hospital defaulted on $60 million of Medical Clinic Board of the City of Montgomery, Alabama, healthcare facility revenue bonds this summer.
Since the default, holders of a majority in principle of the bonds and the hospital have held ongoing talks with respect to the hospital’s operational and financial challenges, according to EMMA postings.
The parties in the discussions first agreed to a First 2024 Supplemental Indenture and then, more recently, to a Second 2024 Supplemental Indenture. The second indenture specifies the bondholders will get additional liens to include additional real property, subject only to the liens found in the bridge security package guiding the new loans.
The hospital didn’t make rent and bond trustee payments from March to July. It had been working to merge or in some way affiliate with HumanityCorp, but that fell through. The bond trustee took action to accelerate payment of all outstanding bonds in early August.
The hospital didn’t make an interest payment in early September and the bonds remain due in full.
Jackson Hospital
In June, Moody’s Ratings cited the hospital’s severely deteriorated cash-flow and financial position and said the hospital suffered from very weak financial strategy and risk management, management credibility and track record. Moody’s subsequently withdrew its rating due to insufficient information.
S&P Global Ratings lowered the hospital debt to D in September and subsequently withdrew the rating.
There have been two hospital defaults this year following four in 2023, according to the November 20 issue of MMA’s Default Trends.
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UMB Bank is the bond trustee and Kramer Levin Naftalis & Frankel is the law firm representing the bondholders.