NORTH ADAMS -- The parent company of North Adams Regional Hospital filed for Chapter 11 bankruptcy protection on Monday in U.S. Bankruptcy Court in Springfield.
Northern Berkshire Healthcare officials say the move is necessary: Six months of intense negotiations with bondholders hasn't yielded an agreement that would restructure and permanently reduce the organization's $43 million in bond debt. NBH's overall debt, which includes capital leases and mortgages, is $49.5 million.
"We've taken great pains to ensure the community will continue to receive the same quality of care and the same quality services," said Richard Palmisano, CEO and chief restructuring officer, during an interview. "We want to ensure the community that it will be business as usual and they should not see any changes in services or care."
Much of the $43 million in bond debt is related to the expansion of North Adams Regional Hospital and the remaining debt associated with the purchase of the Sweet Brook nursing home and the Sweetwood assisted living facility in 1999. Although NBH sold both Williamstown properties last August for $6.6 million and the assumption of $15 million in liability debt, it still retains some $13 million in debt from them.
Board of Trustees Chairman Dr. Arthur Turton said Chapter 11 will allow the organization to restructure its debt to a more manageable size and emerge from bankruptcy protection proceedings with a more fiscally sound foundation.
"We want to assure the community that a Chapter 11 filing will not result in the closure of North Adams Regional Hospital," he said. "It will allow us to emerge as a stronger organization and continue to operate during the proceedings. We've seen many of these filings take place around the country in the last year. General Motors recently emerged from a similar filing. During that time, they continued to operate and came out doing much better."
NBH officials hope to emerge from the bankruptcy proceedings in about six months with a settlement that structures the organization's debt to be consistent with its overall valuation or worth. That figure will be determined by the court.
"We're hoping to see the cost of our debt payments, which are currently at $4.2 million a year, reduced to between $1.2 million to $1.5 million," Palmisano said.
He said the immediate impact of the filing should not disrupt employee benefits or payroll and should have a minimal effect on the organization's vendors. He does not anticipate the filing to result in any further layoffs or reductions in staff.
"Upon filing, there is an immediate freeze on all of our accounts for 24 to 48 hours to assure we have sufficient cash on hand to operate," Palmisano said. "We are confident we have the funds to do this. Since March, the hospital has been turning a profit, once you subtract one-time expenses such as legal and consultant fees. We have been reassured by our legal counsel that this is only temporary and that our accounts will be active again in 24 to 48 hours."
NBH administrators began negotiations with bondholders in September as part of a multi-pronged plan to right-size its debt, which included the sale of the Sweet Brook and Sweetwood; filing for Critical Access Hospital status; the reduction of 43.2 full-time equivalent positions at NARH as recommended by the outside consultant Navigant; and affiliating with another health care organization.
"Our long-term plan includes integrating with a larger health care organization, Palmisano said. "We've had informal talks with Berkshire Health Systems, but that can't happen until we restructure our debt. We feel $43 million is too large a burden for us."
Turton said over the last six months the organization has come close to filing for bankruptcy protection several times, but had held off on the request of the bondholders. He said each time the bondholders returned with a offer that did not reduce the debt, but instead deferred payments for five years and reduced the amount the hospital would be able to spend on capital improvements such as new technology.
"The Board of Trustees approved of this move at our meeting at the end of May," Turton said. "We've been very frustrated for the last six months. We feel it is time for us to take charge of the situation and move forward."