Ernest/Epoch would have run out of cash in 2023 w/o this equity infusion.
But from where/whom?
3/x
Credit supporting ~30-35% of "rent."
- note the starvation of capex, vs. the ~6-8%+ of revenues minimum needed to keep the lights on, and
- PMH got MATERIALLY worse.
4/x
Refinancing PMH 2018 "New Senior Secured Credit Facilities," which were originated to facilitate a 2018 ~$457mm dividend recap.
Operator capitalized upfront with working capital = ~1.3 years of rent + interest.
5/x
Lifepoint Health credit:
- Losing money,
- generating negative FCF after all lease payments,
- levered mid-8x and rising since 2021,
- corporate coverages declining,
- clearly underspending on capex (below ~6% of revs and lower than D&A) amidst elevated financial obligations and cash burn, and
- already executed several lease modifications, including w/ former Capella, since 2021.
Main ( + ) is the $APO sponsor likely willing to infuse equity if/as needed to avoid negative press. But doesn't change affordability...
6/x
Similar to the ~$40mm equity contribution to the Infracore UJV in 3Q24, at some point post-12.31.23 there was a EUR ~11.7mm equity contribution by each of the partners into the 50/50 MEDIAN "Primotop" UJV with Primonial.
To the best of my knowledge, this was never explicitly disclosed anywhere.
Primotop has a EUR 655mm secured TL maturing 6.30.25 at just ~2.3% fixed.
2.5/x - Ernest
Bakersfield Rehab was purported to have been completed in late-2022 for ~$47mm, and was carried at a gross ~$47.4mm as of 12.31.23.
Stockton Rehab was purported to have been completed in 2023, and was carried at a gross ~$53.4mm as of 12.31.23.
Here's the problem - CA agency cost reports show construction costs of just $33mm for Bakersfield and ~$38.4mm for Stockton.
So where did the other ~$29.4mm go, or ~30% of the total capital deployed, if not to the construction costs?
No shot those are dev fees...
This is like doing a BTS, but giving away the spread to a third party. In this case Ernest...
To me this is like the incomplete Norwood/Wadley shells having lease bases of $472mm/$132mm as of 5.6.24.
Or Wadley having ~$58mm invested in an empty field as of 3Q22.
Just for a completely different tenant. What was the extra money used for?
4.1/x
Within PMH, this is some of what is happening at PMH CT:
- deteriorating financials to the point "no longer viable,"
- going concern likely,
- PBGC liens,
- tax liens,
- lower offer from Yale pre-litigation,
- invocation of the MAC clause to void contract, etc.
Despite all this has been held at ~$355mm "par" for now over two years, with no possibility to realize proceeds at original value, if at all.
4.2/x - "We Underwrite the Real Estate"
A phrase that we have heard ad nauseam despite countless OpCo investments. So what does it actually mean?
Fortunately, thanks to the great state of CT, we have data and financials to demonstrate with PMH.
PMH appropriately treats the overall financing lease payment as a corporate obligation, but here I allocate that portion of the SLB to the corresponding CT portfolio, so as to demonstrate the effects of the "underwriting" and that portfolio's ability to pay.
It means:
- Paying >3x vs. the prior owner/operator in just three years,
- Setting an initial lease rate (in 2019, pre-COVID) well-above prior peak cash flow to service it (in 2017),
- Immediately levering the portfolio >20x, along with increasing overall corporate debt +$250mm,
- Placing the assets in a structural $30-40mm+ cash burn position, and
- leaving the assets "no longer financially viable."
This ignores any losses from the medical group at corporate, assumes the financials can be relied upon, etc. It also shows the misleading/useless nature of reported coverages.
YNHH's revised $150mm for the WholeCo from early-2024 appears generous. Litigation pending.
This is the model, repeated everywhere - "No Longer Financially Viable."
3.1/x
Sounds all too familiar with what we've seen in the U.S. @PrioryGroup. MEDIAN also received landlord support.
Link: telegraph.co.uk/news/2024/12/1…
7/x - Insight: Another "Quality/Qualified Operator"
Now operator for ~$100mm gross investment/~$70mm net BV, and being pushed to operate Sharon Regional, however:
- Insight Chicago lost ~$43mm in 2023,
- Still extracted ~$12mm "management/consulting fee,"
- Negative ~$35.5mm book capital, and
- Already being funded by landlord per UCC filings.
8/x - HSA, or is it AHS?
Credit to @BigRiverCapita1 here for following Alecto so closely. AHS took over former Alecto Sherman in 2023. Another “successful re-tenanting.”
AHS:
- receiving funding from landlord per UCC statement,
- missing payments required by agreements,
- siphoning money from OTHER distressed hospitals to Sherman, and
- staffed with former Prospect and now SHCS folks.
@BigRiverCapita1 8.1/x
And here come the liens being filed on the Miami properties due to non-payment of vendors by HSA.
Rings a mid-2022 bell. Some of us were there screaming about it.
4.3/x - PMH Not Benefitting from $ASTH
Regarding the $ASTH transaction for PHPH (which, btw, has cut $ASTH in half, so not clear it even closes), there is A LOT of bad info out there. Let's clearly establish the FACTS.
The ~$150mm initial consideration at the end of 1H25 + the ~$50mm "kicker" is tell that PMH is getting ZERO or de minimis proceeds.
PMH retained a ~51% equity interest. Above them in the PHPH cap stack was ~$375mm of senior TL debt that likely PIK'd, and a ~$646mm convert that was initially recorded at ~$586mm.
The ~$75MM ~49% preferred equity stake + the ~$646mm convert equaled the outstanding obligations of ~$721.6mm dollar-for-dollar.
The PHPH stake being written down to ~$200mm as of 3Q24 tells you there is no value below the convert, therefore the ~49% "minority" interest + PMH's ~51% equity interest are WORTHLESS = PMH gets no or de minimis proceeds from the transaction, should it close at all.
What does that mean for PMH's solvency?
4.4/x
Another alternative would be that the investment was restructured during 4Q concurrent with the $ASTH announcement, to leave some cash at PMH. And just not announced yet.
Aka another tenant “loan” to delay BK.
Just hit me. Would not doubt that possibility for a second…
7.1/x
More on Insight from @BigRiverCapita1
8.2/x
Today the counsel for "quality/qualified operator" HSA made an appearance in the BK court.
He was also convicted by a UAE court, in cooperation with the U.S. DOJ/FBI/IRS, of money laundering in 2022.
Link: uae-embassy.org/news/uae-embas…
@BigRiverCapita1 Jail sentence overturned, but not conviction.
Link: nytimes.com/2022/08/10/wor…
9/x - Infracore UJV
Another ~5% of "rent" at share, realized through a UJV. More of the same.
Following the most recent ~$40mm equity contribution in 3Q24, with proceeds claimed to repay JV debt (w/ the debt unchanged Q/Q, however), the landlord has now "invested" ~$485mm in total and ~$249mm following the initial investment.
Note: The ~$249mm is > than the share of rent at the current ~70% ownership. Infracore was originally owned less than that. The total investment by the landlord into the operator is > 100% of the rent flowing through the JV by an order of magnitude.
= SMN/Aevis/Infracore has been another "negative sum" investment into an operator that clearly cannot afford its rent.
@BigRiverCapita1 8.3/x
"Dozens of SJMC workers... did not receive their paychecks..." from "quality/qualified" operator HSA.
10/x - Tenor Health, another "quality/qualified" operator?
Thankfully Sharon Regional is not closing, but the "deep rolodex of healthcare contacts" is in fact so deep, that all that can be found apparently are operators run by former Prime, Alecto, Pipeline and Prospect execs! All to try to avoid necessary impairments. That is, if PA doesn't just take the real estate.
- Tenor CEO former Prime exec,
- #2 doesn't even list Tenor on LinkedIn work experience, rather self-employed as "wealth management for sophisticated investors using proprietary strategies" (perhaps largest potential red flag),
- #3 was at Pipeline, Quorum and Prime.
And Tenor tried to take over White Rock from Pipeline.
Another Prime or Pipeline is exactly what the U.S. safety-net hospital system needs! Nothing to see here...
Link #1: wkbn.com/news/local-new…
Link #2: tenorhealthpartners.com/leadership
11/x - Alecto thread (for historical reference)
One of the most overlooked, but imo most important and telling fact patterns, is that of M/C Healthcare which emerged from the Alecto BK.
Not only did the two hospitals lease for a fraction of prior rent in a re-tenanting, contrary to management assertions, but one remained vacant and closed until being sold.
And underneath the surface, M/C was granted a Promissory Note by the landlord in the amount of ~$5.3mm.
The largest tenants received loans. The smallest tenants received loans. Never disclosed, of course.
And as a side-quest, everywhere you look you find Baker Donelson.
@BigRiverCapita1 8.3/x
"Quality/Qualified" operator HSA not paying utility bills w/ Constellation. Several months behind.
Agreements cannot be transferred w/o cure, and never assumed/rejected by deadline.
5.1/x - Ottumwa Reginal (LifePoint)
See above comment on "clear under-investment in capex" based on consolidated LifePoint financials.
Senate report confirms below in case study of ORHC, where required capex was not properly underwritten and FCF overstated on that factor alone.
Another example of the uneconomic "SLB" model used in this fashion, inappropriate underwriting, and setting up near-guaranteed cash burn and tenant failure.
Link: grassley.senate.gov/imo/media/doc/…
4.5/x
Senate report speaks to and confirms above re: PMH:
- Concerned about financial state and deteriorating condition of PMH, yet did deal anyway,
- Proceeds used to refinance recent debt from dividend recap, which means it was a dividend recap itself,
- "Cherry-picking" largest lease base/gain properties for financing lease treatment to benefit tenant via lower taxes, and
- Contemplated but scuttled 2018 transaction shows model - not a REIT in function, rather a buyer/financier of entire hospital systems (including MBOs), using high leverage to cash out prior owners. "A REIT in name only!" Where in the Uses of Funds is capital for tenant to grow/invest in system? Nowhere...
4.6/x
Docs from Senate: budget.senate.gov/imo/media/doc/…
4.7/x
This is what happens following an irresponsible, poorly-underwritten SLB w/ an over-levered, insolvent safety net hospital system as tenant.
Notice the insane cash burn pre-SLB.
Did deal anyway! Comp-driven?
4.8/x
Not a REIT in function, merely in name only. This is a development bank/PE shop hiding in a REIT's clothing.
The "earnout" granted to the tenant also has the reciprocal effect of boosting mgmt. comp via higher gross investment during subsequent years.
Preposterous.
4.9/x
This one to me is very interesting, just on a personal level given what was going on at the time and my experience talking w/ investors about the situation.
- Confirms Centerbridge and Blue Torch as lenders on the $375mm loan from May 2023,
- Confirms the CA hospital OpCos are guarantors of the loan, and
- The rate was SOFR + 1,300bps (but hey, what do I know, amiright?).
On the last point, investors will recall the company stating in conversations "the rate on the 3rd-party debt is similar to the lease rates of ~8%." I know that bc I heard about it. That was a lie.
Also, does that sound like a loan to "capitalize the managed care business for growth?" Not to me - sounds more like Centerbridge & Blue Torch really liked their $375mm basis, should they need to take the keys. Was there subsequent PIK? Almost certainly...
@BigRiverCapita1 10.1/x
Update, unfortunately it did close for now.
4.10/x
Recall from June 2024, several UCCs filed in favor of ECapital on the CA PMH OpCos. I believe this was likely a new ABL facility (~$50-100mm range?). It was another sign the attempted out-of-court PMH restructuring had failed spectacularly, as anyone following it closely would have expected, and that PMH required new money.
It also corresponded to the last time that PMH "paid rent." But was this ~$22mm really more an effective (or actual?) repayment of what is in essence a giant "PIK loan?"
Opted to be run through the income statement and through cash from operations, at a time there was desperation to show "cash flow?"
You can only hide the collapse in CF for so long...
Link: ecapital.com/products/asset…
4.11/x
PWC just sued PMH for non-payment.
Went to arbitration end of 2023, settlement agreement 11.15.24 and PMH already defaulted...
PMH did not cure the default on or before 1.6.25, and sent no further communications to PwC or its counsel.
4.12/x
PMH just filed for Chapter 11 BK protection.
4.13/x
4.14/x
Last night PMH filed for Chapter 11 BK protection. I went back and re-read the summary page of my first deck on 4.21.22. Here were the main points then:
- The mgmt. team is clearly and repeatedly dishonest, and does not disclose adequate data to evaluate both its financial condition and those of its key tenants,
- The return profile of investments is meaningfully lower than represented and does not meet the cost of capital (even then),
- At least two key tenants, Steward and PMH, were not covering rent, appeared insolvent, and were only being kept alive via the landlord's balance sheet support (as that landlord continued to record "rent"),
- It was effectively a "WholeCo" investor hiding in a REIT's body, via OpCo investments into insolvent hospital systems, and
- Reported "earnings" metrics were of VERY poor quality and did not represent the true economics of the business.
The rest is history...
4.15/x
There is currently ~$1bn sitting on the balance sheet right now, excl. PHPH.
This is how much cushion existed under the TNW covenant to the CA, as of 3Q24. They already tripped it once and required an amendment.
Would have likely tripped it much earlier if not for the EPDA pledge in late-Feb. 2024.
4.16/x
We will see shortly, but guessing DIP provider JMB has 1L on the ~$103mm QAF payment due to be paid to PMH in 1Q25...
4.17/x
Here are some of the statements made about PMH over the last few quarters.
Similar to as with Steward, where "operations were improving" and "EBITDARM coverage" was >2.5x w/ 3Q23 results before it filed BK just ~6 months later, the PMH reported coverages continue to show they are useless, meaningless and most likely manipulated metrics with poor "QoE." They cannot be relied upon.
The bottom right quotes are fascinating.
4.18/x
One of the more interesting things in this process vs Steward, will be that PMH’s CA & CT leases are already financing leases/transactions, as opposed to operating leases as was the case with Steward…
4.19/x
CA hospitals + Waterbury are "failed SLBs," aka financing leases/transactions as opposed to true SLBs.
4.2/x
Missed this earlier, but interesting that PMH OWES ~$44mm to the CA DHCS for the QAF program.
Does that mean the ~$103mm was a gross number and not a net number?
4.21/x
If the plan is to "support efforts by PMH to use the Chapter 11 process to complete a successful sale of PMH’s CT facilities," let's perhaps start with what PMH paid for the real estate.
And consider that YNHH's revised offer for the WholeCo was ~$150mm before suing to invoke the MAC and get out entirely...
4.22/x
Been going back through my old notes and comparing against the new Senate docs. I am almost positive this is why they made the now infamous ~$100mm "mortgage loan" upsize on Foothill/Tustin in May 2022 that brought total principal to ~$150mm. And then lied on the call, cancelled the note, rest is history, etc.
I think they likely capitalized the TNE of PHPH on behalf of their tenant, so that the business did not trip covenants/was sellable.
Then cancelled the note and hoped to recover the "principal" via PHPH convert/preferred equity interest, which has subsequently been written off.
Disguised and underwritten as a "real estate loan." On a property that previously sold for 
4.23/x
To be 100000% clear... the CA hospital OpCos ARE NOT excluded from this BK. That is not correct.
Additionally, those OpCos are guarantors under the Centerbridge / Blue Torch debt on PHPH.
4.24/x
Are we really doing this AGAIN? Its just not factually accurate.
All of this was pre-2020...
Link: casedocs.omniagentsolutions.com/cmsvol2/pub_47…
4.25/x
Presented without comment $MPW.
Link: casedocs.omniagentsolutions.com/cmsvol2/pub_47…
4.26/x
This is a lie. They DID NOT receive a $732mm convertible note on 5.23.23. They received a $646mm convertible note, but then also recorded PHPH preferred equity as "received" before the CA DMHC approved the minority interest transfer and ran it through the P&L.
Then when called out, just pretended like it never happened and was all convert. PHPH subsequently massively written down.
Was used to delay required impairments, but also to hide MASSIVE undisclosed deferred rent amounts from 2022-2023 and attempt to recover them.
It failed. SPECTACULARLY.
Recall @WSJ @JonathanWeil article...
4.27/x
Desperate much? $MPW
Link: casedocs.omniagentsolutions.com/cmsvol2/pub_47…
4.28/x
~$20mm is less than immediate need per DIP budget. Less than ~1 weeks payroll.
Guys, again, THEY HAVE NO MONEY.
4.29/x
"Is the proposed $20mm $MPW DIP sufficient to fund the Debtor over the first 4 weeks of the case?"
4.30/x
$MPW was approached by $HLI for a DIP loan. Two proposals were received, one was a commitment (JMB).
Means $MPW did not provide a commitment....
4.31/x
From the beginning, you may have heard me say " $MPW is not a REIT, it is a hospital WholeCo investor hiding in a REIT's body. It effectively pulls the residuals/equity out of hospital systems and avoids corporate income taxes inside a REIT wrapper. It, therefore, should be valued/analyzed as a hybrid owner/operator."
Similar to how $MPW became a direct ~9.9% equity owner, largest unsecured creditor and landlord to an insolvent Steward, or owned 75-90%+ of the economics of Ernest and Capella, it owns ~$1 billion of the ~$1.1 billion pre-petition cap stack of an insolvent Prospect.
@BigRiverCapita1 8.5/x
"Quality/qualified" operator HSA not paying amounts due to Morrison/Compass under the GSE and sale orders.
Another ~$5mm...
Link: restructuring.ra.kroll.com/Steward/Home-D…
@BigRiverCapita1 GSA*
@BigRiverCapita1 newsbreak.com/akeena-1857977…
@BigRiverCapita1 8.6/x
AHS/HSA also operates former Alecto Sherman:
10.1/x
Do you see it yet? None of these hospitals can function under the leases without $MPW funding the OpCo, in this case Tenor… as a REIT!
They invest in the operations, so as to avoid writedowns and collect “rent.”
Funding needs just went up…
Link: bing.com/fd/ls/GLinkPin…
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