At face value CBA’s (ASX:CBA) decision to offer Healthscope a funding package of $100 million - which follows the debt-riddled unlisted private hospital’s decision to finally appoint KordaMentha as administrator today - could be seen as tantamount to bringing a knife to yesterday’s gun fight.
After all, Healthscope owes a syndicate of banks and hedge funds $1.6 billion in long-term debt.
But that’s only half the story.
Receivers are also on board
The appointment of KordaMentha also coincides with Healthscopes' lenders' decision to also appoint corporate restructuring firm McGrathNicol as receivers.
Confused? Here's what's really happening.
While the parent companies are in receivership, the operational business, which runs the hospitals, is not.
In other words, by tipping in $100 million in loan funding, CBA is not expecting to save the company, but merely help it remain solvent while the receivers seek a buyer or buyers for the 37 hospitals that it operates.
It’s understood that CBA’s $100 million adds to Healthscope’s current cash balance of $110 million, which of itself won’t keep the lights on for very long.
Commenting on recent developments, Healthscope CEO Tino la Spina reminded the market that it’s business as usual for its 19,000 patients at its 37 hospitals Australia-wide.
“… today’s appointment of receivers, including the additional funding, ensures a stable path to sale, with no impacts on any hospitals, staff or patients,” he said.
Conflicting interests
Offshore lenders, including hedge funds, like London-based Polus Capital and LA-based Canyon Partners – which bought a sizable chunk of the debt at around 40 cents in the dollar - want quick asset offloading.
However, local lenders, including CBA and its other ‘big-three’ counterparts favour a less disruptive solution - to Healthscope's day-to-day operations – which would reflect badly on their lending acumen.
On an encouraging note, McGrathNicol partner and receiver Keith Crawford's rhetoric shows courage.
He wants the market to believe that if the business is sold as a going concern, there should be no plans for hospital closures or redundancies.
But in reality, Crawford isn't the one to make that decision.
Meanwhile, the Australian Nursing and Midwifery Federation – which has around 9,000 members working in Healthscope operations – is also vying for a say in what entity ends up controlling all or part of the business.
Sold off for its parts
While Healthscope has hospitals in every state, potential acquirers – including frontrunner Ramsay Health Care; St Vincent Cabrini Health; and Epworth – among others, like UK-based Bupa - have already expressed interest in buying parts of the business that complement their existing operations.
Interestingly, while all major banks are said to be enthusiastic about throwing more money - a la superior senior debt - at Healthscope to keep operating, the market may consider its favouring sentimentality over common sense.
There’s now growing speculation that McGrathNicol’s new round of discussions with former suitors will only hasten closures and the eventual selldown in part to multiple bidders.
