Trinity Regional Hospital Sachse borrowed $68 million just three years ago to build a new, state-of-the-art facility in a fast-growing area northeast of Dallas.
(Bloomberg) — Trinity Regional Hospital Sachse borrowed $68 million just three years ago to build a new, state-of-the-art facility in a fast-growing area northeast of Dallas.
Since opening its doors in November 2021, the hospital has encountered a litany of problems. On Tuesday, it filed for bankruptcy and is searching for a buyer.
Trinity Regional’s plight, exacerbated by its own missteps, follows similar trouble for health-care facilities across the US, including a Chapter 9 petition for a hospital district in California and the announced closure of a hospital in Eugene, Oregon, home of the state’s flagship research university.
The health-care sector is still struggling with the effects of staff shortages and higher costs for wages and supplies that came after the Covid-19 pandemic prompted lockdowns and health crises in early 2020. But Trinity Regional’s own mishaps compounded its troubles from the start.
“This is a perfect case study for health care in America today,” Jon Nash, the chief restructuring officer for the hospital and managing partner at MeadowLark Advisors, said in a phone interview. “It completely encompasses all of the complexities and bureaucracy and patient care issues in one small community hospital.”
Trinity Regional’s owners laid out the case for a new hospital in the bond offering: a fast-growing population, a site near a new highway, a fractured market with two recent hospital closures, a plan to expand into a 20-acre medical campus including doctors’ offices and an outpatient surgery center.
The hospital would differentiate itself with a “lean” structure and a “culture of speed and quality in patient care,” with 30-minute limits for tasks such as reading radiology films. It would make “minimal” use of managed care and discounted services, the prospectus said, noting that 80% of the population in the area had commercial insurance.
The risks were clear, too: the bonds were unrated, with yields ranging from 6% to 15%.
Seven unrated hospitals have defaulted this year, according to Bloomberg data, in a combination of failures to pay and violations of borrowing agreements known as covenants. The high-yield hospital sector is the worst-performing in the muni market year-to-date, down 0.8%.
Read more: University of Oregon’s Hometown Poised to Lose Only Hospital
Right before construction began, one investor withdrew its commitment to buy $15 million in bonds, leaving the proposed facility with a funding shortfall.
Still, construction kicked off despite what Nash in court papers called “the lack of a comprehensive startup and operational plan and by inadequate strategic preparation for the competitive market.” The hospital opened before it had an operating intensive-care unit or approval to accept government-insured patients.
More problems followed. Trinity Regional struggled to recruit physicians, which meant fewer patients streamed through its doors than anticipated. It discovered its intensive-care unit was “improperly constructed,” requiring a complete renovation that took months.
Eventually, it had to seek help. The hospital hired MeadowLark Advisors last July to help it deal with a liquidity shortfall — less than one year after the facility hosted a grand opening celebration with a ribbon-cutting ceremony.
The city of Sachse’s mayor said he’s confident those better times will return.
“Sachse and the Dallas-Fort Worth Metroplex are thriving economically and we know that whether it is Trinity or another hospital group, this facility will achieve long-term success,” Mayor Jeff Bickerstaff said in an email.
As problems mounted, attempts to find a buyer stalled, with potential acquirers balking at its $2 million annual land lease payments. It filed for bankruptcy on Tuesday, tapping Principal Street and Aberdeen Standard Investments to provide $14 million in bankruptcy financing.
But funding itself through Chapter 11 will be expensive. The bankruptcy financing the hospital has proposed includes a fixed 12% interest rate, court papers show. The financing is subject to court approval.
Now, the process is on to find a new owner. While buyers haven’t been lining up for single hospitals, a new facility in a fast-growing region may have appeal.
“We’ve fixed all of the big problems, we’ve got the ICU up and running, and we now own the land it sits on,” Nash said. “This hospital is ready for a buyer to run with it.”
–With assistance from Eric Kazatsky, Julie Fine and Rheaa Rao.
(Adds mayor’s comment in 14th and 15th paragraphs)
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