Investment Group in Default on Loan To Finance Purchase of Four Orange County Hospitals
Costa Mesa-based Integrated Healthcare Holdings on Monday indicated in a public filing that it is in default on a $50 million loan from Medical Capital to finance the purchase of four Orange County hospitals from Dallas-based Tenet Healthcare, the Orange County Register reports. The hospital purchase is "in danger of unraveling" because of the development, according to the Register.
However, Gary Sheppard, a lawyer for Medical Capital, said, "Nobody's in imminent danger." He added that Medical Capital would like for the default to be corrected.
Medical Capital has not filed a more formal document, which would initiate a 90-day deadline on possible foreclosure of the hospitals, Sheppard said.
Medical Capital in a default letter to Integrated Healthcare stated that the company owes Medical Capital $64 million due immediately and that a 19% default interest rate now applies to the loan, up from 14% in the original loan agreement.
Integrated Healthcare's loan agreement with Medical Capital also included an option to borrow as much as an additional $30 million in working capital.
Integrated Healthcare indicated in the filing that Orange County Physicians Investment Network did not fulfill its financial obligation in the deal, causing the default. According to the filing, OCPIN still owes $20 million of its $30 million contribution.
Anil Shah, head of OCPIN and chair of Integrated Healthcare's board, said OCPIN had put $15 million toward the deal. He said the other $15 million was optional.
Integrated Healthcare attorney Allen Sussman disputed Shah's claim and said the physicians' group owes $20 million.
Bill Mitchell, a lawyer for OCPIN, said the doctors plan to contribute more money, although he did not give a specific figure.
Sheryl Skolnick, a hospital expert for New York-based Fulcrum Global Partners, said that Integrated Healthcare would have to recruit another investment partner if OCPIN does not provide additional funding.
Skolnick said, "If anything qualifies to be described as a mess, this is it." She added, "What's very clear is that the lender is very unhappy about something and is not messing around, because this loan has only been in place two months, and already it's in default, and they're worried" (Wolfson, Orange County Register, 5/17).