Healthscope enters receivership with $1.6b of debt, forcing lenders to withdraw support and CBA to inject $100m lifeline
A major private hospital operator with $1.6b of debt has entered receivership on Monday and will begin working with a leading firm to sell the business.
The lenders behind Healthscope, which runs 37 hospitals across Australia, have opted to call in McGrathNicol Restructuring to find a buyer.
Healthscope was purchased by Canadian asset management firm Brookfield in 2019, however, it handed control of the health company to the lenders earlier this month.
This syndicate of hedge funds and banks voted on Monday to put the company into receivership.
All the hospitals will remain open and operate as usual with no impact to the staff, doctors or patients, Healthscope said.
It has received a $100 million lifeline from Commonwealth Bank of Australia, which comes in addition to its current cash balance of $110m and 'substantial additional asset backing across the group', according to Healthscope.
Westpac has also agreed to provide the receivers with capital to facilitate the sale.
The company's CEO Tino La Spina told reporters he is confident there will be a buyer to take over the business.
'I think we're confident that there is interest in taking the Healthscope business as a whole. We have 10 non-binding indicative offers,' Mr La Spina said.
'Some are for the whole (business) and others potentially could include the whole (business) under certain circumstances. That is the focus.'
Health Minister Mark Butler stressed that while the staff and patients were assured the hospitals will continue to operate, 'this will still be difficult for the hospital's employees and their patients'.
'As Healthscope have today stated, if you have a planned procedure in one of their hospitals, it will go ahead,' Mr Butler said.
He also noted the government had met with KordaMentha, Healthscope's administrator, and the receiver and expects the hospitals to 'remain a critical part of our healthcare system'.
'The government does not want any of these important assets to be put in jeopardy to satisfy international investors,' Mr Butler said.
However, Labor will not bail out the embattled healthcare group.
'We remain steadfast in our view that an orderly sales process that maintains the integrity of the entire hospital group will provide the best outcome for patients, staff, landlords and lenders,' Mr Butler said.
Healthscope owns 13 hospitals each in Victoria and NSW, alongside five in Queensland and four in South Australia and about 19,000 staff across the nation.
The company came under recently after a two-year old boy died at its private-public Northern Beaches Hospital after a misdiagnosis meant he was classified as a low-priority patient.
It led to an inquiry where the NSW government banned public-private hospital partnerships.
Local state member Jacqui Scruby said the receivership was an opportunity for the NSW government to purchase the hospital.
'It is now crunch time. With hedge fund backers pushing for Healthscope's' assets to be sold, the NSW Government must seize this opportunity to buy not just the public beds, but the entire Northern Beaches Hospital,' Ms Scruby said in a statement.
'Northern Beaches residents deserve a hospital with enough beds and services to meet the needs of our growing community, now and into the future.'
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Canadian investment firm Brookfield is a global financial giant with a trillion dollars under management, yet it could not save Healthscope and decided to walk away with a $2 billion loss. In simple terms, it paid too much using too much debt, and sold off the land for many of these hospitals to landlords under deals that allowed them to charge too much for rent. As an interesting contrast, unlike Healthscope, Ramsay owns most of its hospitals and the land they sit on. It means Healthscope lenders who are owed $1.6 billion, including Australia's Big Four banks, will also wear massive losses once the proceeds of the sale are divvied up between them. The good news is that this will ensure the business is transferred with zero debt in any sale. Landlords will also be wearing a lot of the pain to help many of these hospitals become financially viable for a new private owner. The alternative is closure if state governments don't step into the breach. Healthscope's hospitals would be empty if doctors lost faith and moved their elective surgeries to private hospitals nearby. This explains why Healthscope reached its own abyss well ahead of its rivals, and faces a much larger challenge just to get back to the abysmal state the sector as a whole faces. Separate to this is the immediate challenge that La Spina faces in running the day-to-day operations at the hospitals, and it explains why his fireside chat came with so much heat: Healthscope desperately needs to keep faith with the many specialist doctors and surgeons who actually generate its revenue. Around 70 per cent of elective surgeries in Australia take place in a private hospital. La Spina knows that the last thing they want is Healthscope in the hands of a private health insurer, who could dictate how much a hip replacement should cost. Loading Healthscope's hospitals would be empty if these doctors lost faith and moved their elective surgeries to other private hospitals. If this business flows out the door, it doesn't matter what happens to its rent bill and debt levels. La Spina may not like it, but the truth is BUPA is almost certainly among the parties interested in buying either all of Healthscope's operations or parts thereof, and there is nothing he can do about it. His immediate priority is to keep the day-to-day business running while the lender-appointed receivers from McGrathNicol kick off the sales process next month, with as many as 30 parties interested in Healthscope as of this week. The receivers have one job, maximise the sale price and return as much money as possible to the lenders. Loading To this end, they are expected to focus on a single transaction involving all of Healthscope's assets - if possible. The price will be determined by the receiver's delicate dance with landlords over how much financial pain they are willing to endure to give potential suitors confidence they are buying a viable business. If the rent concessions are too low, the hospitals won't find a buyer and their staff could be out of a job. The success of any sale is also heavily dependent on whether all potential white knights are allowed to come to Healthscope's rescue.
