Hospitals seeing financial assistance from distressed asset, real estate firms

In a bid to buy, save and turn around deeply distressed hospitals in U.S. cities and suburbs, a new entity, StoneBridge Healthcare LLC, was formed by top hospital finance experts with backing from major financiers including Howard Marks’ Oaktree Capital Management. Oaktree of course made headlines earlier this year with its blockbuster distressed debt capital raise of $15 billion and since then investor capital has flocked to the space. Marks in his latest memo highlighting the impact of the coronavirus wrote: “Unfortunately, in some instances the reopening took place before the number of new cases had declined enough for the spread of COVID-19 to be brought under control, and people in areas that had been spared in the early days acted cavalierly, allowing the disease to regain a foothold in their regions. Borrowing from Churchill (who probably borrowed it from Machiavelli), people who regulate economies and manage businesses say ‘never let a good crisis go to waste.’ But in the case of COVID-19, the U.S. did just that.” Officials at StoneBridge say that the entity was in the works long before COVID-19, but the disease has only accelerated the need for distressed hospitals to be saved. They say that many U.S. hospitals, particularly in underserved communities, are close to running out of cash and the ability to operate. "We want to ensure that these vital places of high-quality care remain open and thriving for the communities they serve," said StoneBridge CEO Joshua Nemzoff. "Our experience, our financial investment and our commitment to expanding primary care into the urban areas we serve make our company the only one of its kind.” His work is being backed not only by $120 billion Oaktree Capital Management, but also by Medical Properties Trust, which is a $20 billion real estate investment trust (REIT) that currently owns nearly 400 acute care hospitals. With the backing of MPT, Oaktree Capital and additional sources of an undisclosed amount, StoneBridge Healthcare said can immediately step in and not only proceed with acquiring a hospital; but can also provide cash before closing through a rescue financing program; and restructure the hospital prior to closing so they can succeed long term. Oaktree Capital, according to its latest SEC filings for second quarter 2020, has roughly $443 million in U.S. healthcare debt on its books. MPT is an Alabama-based company that has grown to become one of the world’s largest owners of hospitals across four continents. The company finances acquisitions and recapitalizations in addition to allowing operators of hospitals to unlock the value of their real estate assets to fund facility improvements, technology upgrades and other operational investments. Meanwhile at StoneBridge, there is a team of experts in place focused on healthcare operations, finance, acquisitions and turnarounds. The firm plans to purchase and turn around acute care hospitals that are in significant economic distress and could otherwise be forced to close. It is actively exploring and vetting hospitals to purchase and will follow up with hospitals that approach the company for consideration. "This is about patient care," Nemzoff said. "If these hospitals go under, people in underserved communities will have nowhere to turn in emergencies."

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