BOSTON — The Healey administration is lashing out at Steward Health Care System’s creditors for seeking to block $30 million in state funding to help transition the bankrupt company’s hospitals to new owners.
In a new filing in U.S. Bankruptcy Court, Assistant Attorney General Andrew Troop accuses a group representing creditors seeking to collect $9 billion in debt from Steward of engaging in “brinksmanship” in an effort “to wring out more value from qualified bidders or the commonwealth to salvage their own bad financial, investment or lending decisions.”
“Many of these creditors seem to have lost sight of the importance of providing safe healthcare over the long term, and instead seem intent on saddling bidders with potentially critical levels of debt or obligations, which will only make this crisis a recurring one,” Troop wrote in the seven-page statement.
While the state is “unable” to stop Steward from closing the two hospitals, Troop said it still has “significant police powers” to intervene in the federal bankruptcy process if it “does not result in a clear path to the sale of the hospitals.”
The fiery statement comes as a federal judge in Texas weighs a request from a group representing Steward’s myriad creditors to reject Gov. Maura Healey’s plan to devote $30 million in repurposed Medicaid funds to help transition the sale of six of Steward’s hospitals as part of the company’s bankruptcy proceedings.
Steward plans to put its 31 U.S. hospitals — including Holy Family’s locations in Methuen and Haverhill — up for sale to pay down $9 billion in outstanding liabilities owed to creditors. The company filed for federal bankruptcy protections in May.
Steward said it wasn’t able to find buyers for Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer and announced plans to shut down the facilities in the next 30 days.
U.S. Bankruptcy Judge Christopher Lopez, who is overseeing the case, approved the request to close the hospitals following a Wednesday hearing in a Texas courtroom.
Bids on Steward’s Massachusetts hospitals and other states were due last week, but the company hasn’t disclosed prospective buyers. A hearing on the sales was scheduled for Thursday, but the company asked the federal judge presiding over the case to postpone the proceedings until Aug. 13, without citing a reason.
Last week, Healey officials announced plans to provide $30 million in Medicaid funds to help ensure a “smooth transition” to new ownership for the company’s six remaining hospitals. Healey told reporters earlier this week that “not a dime” of the funds will go to Steward or its management team.
But in a court filing this week, a committee representing Steward’s creditors asked Lopez to block the move, arguing that the transition funding would come “at the expense of the rest of debtors, their estates and their creditors.”
On Wednesday, Lopez approved a request by Steward and others to reject a master lease for all the hospital properties, saying the move “is in the best interests of the Debtors, their respective estates, creditors, and all parties in interest.”
The Attorney General’s office sided with Steward on the lease issue and has accused the hospitals’ landlords — Medical Properties Trust and Macquarie Asset Management — of trying to block the move “to extract concessions from the Steward estate and their mortgagee.
“These hospitals – while each in name a lessee – have been forced to pay the costs typically associated with property ownership, including real estate taxes, maintenance, and insurance,” Troop said in the latest court filing.
Steward’s landlords objected to the request to reject the master lease, arguing in court filings that federal law prohibits the company from stopping rent payments “when their express intention is to continue conducting business in the landlords’ property pending a proposed sale.”
“If a debtor were permitted to reject a lease and stop paying rent, while continuing to conduct business in the landlord’s property, every debtor would do that,” lawyers for the two property owners wrote in a legal filing. “But of course that is not allowed.”
During Wednesday’s hearing, Lopez also heard arguments for approving the Healey administration’s request to use the $30 million for transition costs, but it wasn’t clear when he would issue his ruling on the funding.
Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at cwade@cnhinews.com.