Regional Healthcare Inc.'s biggest creditor got some good news Wednesday.
Federal bankruptcy Judge Thomas Baynes approved a request by CNA Insurance Cos. of Chicago to buy out other creditors' claims.
Regional, which owns Spring Hill Regional Hospital and PineBrook Regional Medical Center and leases Brooksville Regional Hospital, filed for bankruptcy protection from creditors under Chapter 11 of the federal bankruptcy law in February 1993. The Brooksville company has listed more than $60-million in debts.
CNA opposes Regional's reorganization plan, which calls for paying creditors roughly 30 cents on the dollar.
Wednesday's decision clears the way for CNA to pay $6-million to buy up other creditors' claims in full, including interest. In purchasing the claims, CNA would acquire the other creditors' voting rights, thus putting the company in a position to vote down Regional's bankruptcy plan.
The creditors' votes on Regional's plan will be an important factor in the court's final ruling on the reorganization of the health-care company.
"We can't and will not support the debtor's plan," CNA's attorney, Bill Smith, reiterated at Wednesday's hearing.
CNA ultimately wants to take control of Regional's assets and bring in a new company to manage county-owned Brooksville Regional, as well as PineBrook and Spring Hill Regional, which it proposes to convert into something other than an acute-care facility.
Judge Baynes didn't allow CNA to introduce its own reorganization plan Wednesday. He said it was still too early for that. But he said he wouldn't block CNA's plans to pay off other creditors, and he approved a solicitation letter that the company had prepared. Regional will have 10 days to appeal the letter.
"People have an absolute right to sell their claims," Baynes said. "My feeling is, it's freewheeling. . . . If it's done for the purposes of getting the vote, why not?"
While not blocking CNA's proposed buyout, Baynes refused to issue a formal order sanctioning it, as CNA's attorneys had requested. Doing so, he said, would deprive Regional of its rights to challenge CNA's solicitation letter. Regional could argue that the letter is a "bad faith" attempt to disrupt the ballot process.
Regional's attorney, Robert Soriano, said he wasn't surprised by Baynes' refusal to stop CNA's buyout attempt.
"We have no legal right to prevent them," he said.
However, Soriano said CNA may not be able to buy up a majority of creditors' claims. And even if it did, its own reorganization plan poses problems, he said.
For example, Hernando County, which owns Brooksville Regional and which holds the license on the beds at both hospitals, would have to approve CNA's plan to take over Regional Healthcare's assets, but hasn't indicated a willingness to do so.
Creditors won't vote on Regional's reorganization plan until next year, and Judge Baynes is not expected to give a final ruling on the plan until the spring.
On Nov. 28, attorneys for both sides will continue an earlier hearing on the question of whether CNA is entitled to some $15-million in cash Regional Healthcare has earned from Spring Hill Regional since 1992, the year the hospital's holding company changed its name.