Quorum considering bankruptcy as it struggles to stay afloat – ModernHealthcare.com

Bankruptcy is one option Quorum Health Corp. is considering as the COVID-19 pandemic weighs on the already struggling for-profit hospital chain.

Brentwood, Tenn.-based Quorum revealed in a Securities and Exchange Commission filing it is in talks with its debt holders regarding a recapitalization or financial reorganization transaction that may include voluntarily filing for Chapter 11 bankruptcy. The company stressed the need to grow liquidity and continue patient care and hospital operations.

Quorum CEO Robert Fish said in a statement that regardless of the path forward, Quorum and its hospitals will maintain all operations without interruption.

"Our facilities play a critically important role in their communities and the fight against COVID-19," Fish said. "We are intensely focused on ensuring our employees have the resources they need to provide quality care to the patients and communities they serve, now and well into the future."

Meanwhile, the investment group Mudrick Capital Management, which owns roughly 10% of Quorum's shares, warned the company in a March 23 letter on behalf of its shareholders not to enter bankruptcy.

David Rosner, a partner with Kasowitz Benson Torres in New York who represents Mudrick, explained that through a bankruptcy filing, Quorum and its bondholders may be seeking to wipe out the company's shareholder value and deliver the value to its bondholders, including the private equity firm KKR and Goldman Sachs.

"The board of Quorum has an absolute duty to its shareholders, not its bondholders," Rosner said. "To Mudrick and the people who hold the shares, not to give that value away, but to maximize it."

Quorum has struggled financially since its 2016 spin-off from Franklin, Tenn.-based Community Health Systems, including posting more than $300 million in net losses in 2017 and 2018 combined. The company is down to 24 hospitals, from 38 when it was spun off.

Nevertheless, Rosner maintains that Quorum still has value as a company, and will receive additional liquidity from the government through the federal stimulus known as the Coronavirus Aid, Relief, and Economic Security Act. Further, Rosner said the partnership with R1 RCM that Quorum announced last year will add operating income.

"We think the metrics are pretty clear that the business itself is sound," he said.

Mudrick has not received a response from Quorum's board.

Quorum, whose shares lost about 20% of their value on Friday, operates hospitals in rural and mid-sized markets across 14 states. Together, the hospitals have almost 2,000 beds.

In the SEC filing, Quorum said the company will be late in filing its year-end 2018 financial report, as management is absorbed in conversations about the company's future. Quorum said it anticipates filing that report no later than 15 days following its original due date.

The private equity firm KKR is Quorum's largest debt holder. KKR also owns about 9% of Quorum's common stock.

KKR in December offered to buy out the embattled company's public shares held by minority owners for $1 per share. The deal would have included restructuring Quorum's debt and injecting new capital. In an update filed March 10, KKR said that discussion has shifted from a take private transaction to a reorganization, with no assurance that Quorum's shareholders will receive any consideration.

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Quorum considering bankruptcy as it struggles to stay afloat - ModernHealthcare.com