City risks land to help DRMC secure loans

DOWNEY - As part of its exit bankruptcy strategy, Downey Regional Medical Center, which had filed for bankruptcy protection under Chapter 11 in 2009, has sought the city's help in formulating a deed of trust, assignment of leases and rents, and security instrument so it can obtain bond financing totaling $57 million for operating expenses and to retire "a few old debts."Tuesday the city council approved the request, but not before it issued a plea for DRMC not to drop the ball as it is no less than the people of Downey's wish to have a hospital of its own for as long as the city exists. Also, it was pointed out that should there be a foreclosure on the property, its nonprofit status could be at risk and become a for-profit one, with all that this implies. Besides, as mayor Roger Brossmer said, "We need two hospitals here because of overcrowding." Of the total loan amount, $37 million will be secured by the property at 11500 Brookshire Ave. and $20 million by accounts receivables. A concomitant resolution passed by the city council is a reimbursement agreement between DRMC and the city stipulating that the hospital reimburse all associated costs and fees incurred in the process and administration of the deed of trust package. A third important component of the package is the approval of two landlord waiver and consent agreements-one among the city of Downey, DRMC, and Union Bank (representing lenders), the other among the city, DRMC, and Midcap Financial (representing another group of lenders)-which, according to city attorney Yvette Abich Garcia, are associated with the "administration of lender rights under a deed of trust, assignment of leases and rents, and security agreement that facilitates the financing of the operation of DRMC." All this means, she explained, is that either bank will have access to the hospital's personal property in case of foreclosure. There are additional safeguards as well, as found in the lease agreements. Under the terms of the voter-approved 1983 lease, which was extended until the year 2082, the city council said the city is dutybound under a subordination clause to lend DRMC a hand because of a binding provision to help DRMC "borrow money or enter into other financing arrangements at the most favorable rates and upon the most favorable terms available" to enable it to obtain financing for the continued operation of a hospital. Before council approval was obtained, DRMC executive vice president and chief operating officer Rob Fuller briefly recounted how the financial problems that had plagued DRMC in the past were traced especially to the hospital's flawed financial system that featured an ineffective capitation financing process and it was not until a new business model was later instituted that the ship got righted. Even so, because of the downturn in the economy, things got really tough and all the hospital could manage to this point was break even. The business model was hitting its targets then, Fuller said, as it changed to a fee-for-service payment schedule, for instance, and the whole financial operation was overhauled from top to bottom. With this new infusion of new working capital, there's no doubt hearts are racing and hoping that the hospital makes it. Part of its updated operational strategy, for instance, is to address the overcrowded situation in the emergency room exacerbated by the influx of uninsured patients needing emergency care. To this end, Fuller said DRMC will seek a partnership with an outside clinic to take care of the overflow. He also said that the hospital will need at least $6 to $10 million for mandated seismic improvements by 2015, or by 2020 under justifiable circumstances. Said councilman Fernando Vasquez, for one: "I hope this plea for help won't be repeated." Also addressing Fuller, mayor Brossmer said: "I'll be rooting for you."

********** Published: February 16, 2012 - Volume 10 - Issue 44