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Hospitals one step closer to settlement

The biggest creditor of the company that operates Hernando's two not-for-profit hospitals has given a qualified thumbs up to a county plan for ending a protracted bankruptcy case.

In a June 15 letter to County Administrator Chuck Hetrick, Bill Smith, attorney for CNA Insurance Cos. of Chicago, said CNA generally supported the county's plan, with a few qualifiers.

"CNA believes the county's term sheet (plan) is an acceptable basis for resolving the problems relating to Regional Healthcare Inc. and its affiliates," Smith wrote.

Regional Healthcare Inc. sought protection from creditors in February 1993, listing $64-million in debt. Most of the money is owed to CNA, which invested in tax-exempt bonds that were issued to construct Spring Hill Regional Hospital and upgrade Brooksville Regional and PineBrook Regional Medical Center.

The two sides have fought bitterly over how much debt Regional should pay its creditors, and the case shows no signs of ending soon.

The county, which until recently was neutral in the case, has cast itself as peacemaker, attempting to forge a settlement between the two sides.

The county's plan gives Regional a 10-year grace period to get back on its feet. Debt payments during the 10-year period would be based on how much cash the hospitals generate. The plan, which doesn't call for any use of taxpayer dollars, would also guarantee that both hospitals retain their not-for-profit status.

The county has an important role in the case because it holds the license to the beds at both hospitals and owns the Brooksville Regional Hospital building.

Despite CNA's qualified support, the settlement offer has yet to be approved by county commissioners or by Regional's board of directors, who have already expressed some strong reservations.

RHI trustees said in a statement this month that certain positions taken by commissioners representatives "could have a detrimental effect on the ability" of their company to "achieve a quality health care system."

But the board has been reluctant to talk specifics.

The company issued a statement Thursday saying it was still reviewing the county's proposal and would formally respond sometime next week.

County Attorney Bruce Snow said he was pleased with CNA's response.

"Yes, it is encouraging the CNA has expressed a willingness to accept those terms," Snow said.

However, some of the proposals contained in CNA's letter needed further study, he said.

In his letter, Smith said CNA needed to clarify some points in the county's settlement proposal.

They include provisions that Regional will pay the legal fees and other costs incurred by CNA and the county associated with the restructuring of Regional's debt.

Snow said he would await the RHI board's response to the county proposal before presenting it to county commissioners.

Under the county's plan, RHI would repay its creditors in full, instead of 30 cents on the dollar, as the company has proposed in its reorganization plan.

However, in the first 10 years of the agreement, Regional's debt payments would be secondary to meeting the operating costs of the hospitals. The company would only pay what it could, based on its cash flow.

The county would issue, and CNA would market, what are called floater rate bonds. While such bonds can be volatile _ their rates vary weekly _ they would carry lower interest rates than the current interest rate on Regional's debt. The company would save up to $61-million over the life of the bonds, the county predicts.

Regional would have to borrow an additional $4.2-million from CNA to pay off unsecured creditors from its bankruptcy case and would have to meet certain conditions to avoid a default on its loan.

Those include a requirement that the company's expenditures don't vary by more than 10 percent from what's budgeted and that Regional affiliate with a health care network acceptable to the county and CNA.

At the end of a 33-year period, even if Regional hasn't paid off all its debt, both hospitals would be conveyed to the county, free and clear from any claims by CNA, Snow said.

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