Key Takeaways
- • PESP warns that GoldenTree Asset Management's proposed $957 million sale of Quorum Health to nonprofit buyer QKA Health Corporation (doing business as Healthside Partners) could leave Quorum's 11 hospitals with 30% more long-term debt.
- • According to PESP's analysis of regulatory filings, the buyer would emerge with $1.7 billion in total liabilities, approximately $1.26 billion in long-term debt, and $635 million in negative equity.
- • GoldenTree, Quorum's majority owner, holds approximately 24.5% of Quorum's senior debt and could benefit from repayment of existing loans.
- • PESP draws parallels to Leonard Green & Partners' exit from Prospect Medical Holdings and Cerberus Capital's exit from Steward Health Care, both involving heavily indebted hospital companies.
- • New Mexico regulators are reviewing the proposed sale.
Summary
The Private Equity Stakeholder Project (PESP) has published a report warning that GoldenTree Asset Management's proposed sale of Quorum Health to a newly formed nonprofit could follow a pattern seen at Steward Health Care and Prospect Medical Holdings, where private equity firms exited heavily indebted hospital companies. The proposed transaction is valued at $957 million. New Mexico regulators are currently reviewing the sale.
According to PESP's analysis of regulatory filings, the proposed nonprofit buyer, QKA Health Corporation, doing business as Healthside Partners, would emerge with $1.7 billion in total liabilities, including approximately $1.26 billion in long-term debt. The buyer would also carry $635 million in negative equity, with liabilities exceeding assets by 59%. Long-term debt would rise 30%, from $968 million to $1.26 billion, leaving Quorum's 11 hospitals across nine states with a considerably weaker balance sheet.
GoldenTree is Quorum's majority owner and holds approximately 24.5% of its senior debt, positioning it to potentially benefit from repayment of existing loans. PESP argues that GoldenTree and other lenders could receive a significant payout while the hospitals absorb the heavier debt burden.
PESP compares the transaction to Leonard Green & Partners' exit from Prospect Medical Holdings and Cerberus Capital's exit from Steward Health Care. The report acknowledges that the transactions differ in structure but argues that both involved private equity firms exiting heavily indebted hospital companies, and that Quorum could face similar financial pressures after its private equity owners exit.
Jim Baker, executive director of PESP, said: "We've seen what can happen when private equity firms exit hospital companies and leave behind mountains of debt. Steward Health Care and Prospect Medical are cautionary examples, and regulators should be asking whether Quorum is headed down a similar path."
Quorum has shrunk from 24 hospitals when it filed for bankruptcy in 2020 to 11 today. Its current facilities span Arkansas, California, Kentucky, New Mexico, Nevada, Oregon, Texas, Utah, and Wyoming.
According to PESP's analysis of regulatory filings, the proposed nonprofit buyer, QKA Health Corporation, doing business as Healthside Partners, would emerge with $1.7 billion in total liabilities, including approximately $1.26 billion in long-term debt. The buyer would also carry $635 million in negative equity, with liabilities exceeding assets by 59%. Long-term debt would rise 30%, from $968 million to $1.26 billion, leaving Quorum's 11 hospitals across nine states with a considerably weaker balance sheet.
GoldenTree is Quorum's majority owner and holds approximately 24.5% of its senior debt, positioning it to potentially benefit from repayment of existing loans. PESP argues that GoldenTree and other lenders could receive a significant payout while the hospitals absorb the heavier debt burden.
PESP compares the transaction to Leonard Green & Partners' exit from Prospect Medical Holdings and Cerberus Capital's exit from Steward Health Care. The report acknowledges that the transactions differ in structure but argues that both involved private equity firms exiting heavily indebted hospital companies, and that Quorum could face similar financial pressures after its private equity owners exit.
Jim Baker, executive director of PESP, said: "We've seen what can happen when private equity firms exit hospital companies and leave behind mountains of debt. Steward Health Care and Prospect Medical are cautionary examples, and regulators should be asking whether Quorum is headed down a similar path."
Quorum has shrunk from 24 hospitals when it filed for bankruptcy in 2020 to 11 today. Its current facilities span Arkansas, California, Kentucky, New Mexico, Nevada, Oregon, Texas, Utah, and Wyoming.
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