Tue 08/28/2018 06:30 AM
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Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
First Day Hearing Notice

Curae Health is a nonprofit healthcare company with hospitals located in the rural Southeast
Seeks to sell facilities as going concerns and expects to file sale motion "in the near term"
Requests $15 million in DIP financing from MidCap, including a rollup of approximately $10.2 million of prepetition revolving facility obligations

Curae Health, a Knoxville, Tenn.-based not-for-profit rural healthcare company that owns and operates hospitals located in the Southeast, filed for chapter 11 protection on Friday, Aug. 24 in the Bankruptcy Court for the Middle District of Tennessee. The debtors seek to sell each of their facilities and their respective physician entities as going concerns, and say that they have been working with “various interested parties,” and expect to file a sale motion “in the near term.”

The company purchased its three hospitals from Community Health Systems, Inc., or CHS, in 2017 and Curae owes CHS approximately $28.6 million on secured, subordinated seller financing, which the petition lists as “disputed” and “unsecured.”

MidCap Financial Trust has agreed to provide $15 million in DIP financing, including a rollup of MidCap’s approximately $10.2 million in prepetition revolving facility claims. The DIP financing is subject to various sale milestones, as well as the requirement to file a plan and disclosure statement or a structured dismissal motion within 120 days of the petition date.

The first day hearing is scheduled for today, Tuesday, Aug. 28, at 3:30 p.m. ET. According to the docket, an initial conference may also be held on Aug. 28, at 11:30 a.m. ET.

The company reports $10 million to $50 million in assets and $96 million in liabilities. The company’s prepetition capital structure includes:

  • Secured debt:

    • Revolving credit facility (MidCap Funding IV Trust, as successor to MidCap Financial Trust): $10.2 million in principal

    • First priority real estate facility (ServisFirst Bank): $18.8 million in principal

    • Subordinated real estate facility (CHS/Community Health Systems): $28.6 million

  • Unsecured debt: $24 million

CHS provided seller financing in connection with the purchase and lease of certain of the debtors’ facilities from CHS. “As of the Petition Date, CHS is owed the outstanding balance of principal, interest, and fees in the aggregate of $28,609,419.00, all of which is secured by a security interest in and lien on the Company’s real estate assets subordinate to the Prepetition First Priority RE Liens,” according to the first day declaration. The petition, however, lists the CHS claim as “disputed” and “unsecured.” In the DIP financing motion, the debtors say that under a subordination agreement signed by CHS, CHS’ prepetition liens “do not extend to the Prepetition First Lien Revolving Facility Collateral.” In addition, says Curae, CHS agreed in advance to the first lien lender providing DIP financing “up to a maximum principal amount of $18 million,” along with related agreements on DIP liens.

The debtors have approximately $3.4 million in cash.

The company attributes the bankruptcy filing to a “dramatic decrease in net revenues” coupled with higher than anticipated information systems costs. Curae acquired their three Mississippi-based hospitals from Community Health Systems, Inc. in 2017. Though the debtors say the facilities’ performances from 2013 to 2015 were sufficient to warrant the asking price of $51 million and Curae’s operating model would improve upon such performance through a 1% to 3% reduction in operating expenses, such cost reductions were “more than offset” by a $23 million drop in net revenue “between 2013 and 2018 annualized.” As performance fell and accounts payable grew, some vendors began requesting payment plans for older invoices and others threatened to cease delivery of supplies and services if payments were not yet made, creating a “significant cash crunch.”

Non-debtor affiliate Russellville Hospital, Inc., which is a nonprofit that owns and operates a 100-bed acute care facility in Russellville, Ala., intends to continue operating the facility “uninterrupted by these Chapter 11 Cases.” The debtors say that Russellville’s debts and obligations are separate from those of the debtors and are not cross-collateralized or cross-defaulted with the debtors, but the funds that Russellville generates are passed up to Curae.

The debtors are represented by Polsinelli in Nashville as counsel and Egerton McAfee Armistead & Davis as special counsel. Curae is also working with Morgan Stanley to “market the company to potential purchasers.” Other professionals engaged by the company include GlassRatner and BMC Group. The case number is 18-05665. The case has been assigned to Judge Charles Walker.


Curae is a 501(c)(3) not-for-profit healthcare company that was formed in 2014 to acquire and operate rural hospitals in the southeastern portion of the U.S. The company collaborates with medical staff and communities to add new services and upgrade medical facilities with the intent of improving rural patients’ access to health services. The debtors say that, as rural healthcare profitability has declined, larger hospital networks’ willingness to acquire rural hospitals declined, and Curae identified an opportunity to start a company focused exclusively on rural markets.

The debtors’ facilities include a 95-bed hospital in Armory, Miss., a 112-bed hospital and certain other healthcare related facilities in Batesville, Miss., and a 181-bed regional medical center in Clarksdale, Miss.

The company describes its operating model as a lower corporate overhead and hospital level expense model. When acquiring for-profit owned hospitals, the debtors would convert the hospitals to nonprofit status resulting in property and sales tax savings and potential higher reimbursement for Medicaid patients (in select states) that could not be realized under a for-profit model.

The debtors’ largest unsecured creditors are listed below:

The case representatives are as follows:

DIP Financing Motion

The debtors request DIP financing up to $15 million on a revolving basis from MidCap Financial Trust as DIP agent and lender, with the full amount requested on an interim basis. The signature pages to the DIP credit agreement provide for MidCap Financial Trust as both agent and lender, with Apollo Capital Management, L.P. as its investment manager and Apollo Capital Management GP, LLC as its general partner. The debtors seek to rollup MidCap’s approximately $10.2 million of prepetition first lien revolving facility claims. The debtor would be entitled to new money overadvances in an aggregate amount up to $4 million. MidCap and ServisFirst Bank have consented to the DIP facility and the use of cash collateral, and CHS is deemed to consent pursuant to a prepetition subordination agreement, according to the debtors.

The DIP financing bears interest at LIBOR plus an “Applicable Margin” of 4.25%, with 5% added for the default rate, and matures on the earlier of 270 days after the closing date.

The facility includes various fees, including a 0.5% unused line fee, 1% collateral fee and 1% origination fee.

Adequate Protection

The company proposes adequate protection to the prepetition secured lenders (MidCap, ServisFirst and CHS) in the form replacement liens and superpriority administrative expense claims. In addition, MidCap would be entitled to weekly interest payments and ServisFirst would be entitled to monthly interest payments.

The carveout for professional fees is $105,000.

DIP Budget

The proposed budget for the use of the DIP facility is HERE.

DIP Milestones

The DIP financing is subject to the following milestones:

  • Stalking horse agreement: executed within seven days of the petition date (for all of the assets of ARMC, the Armory assets)

  • Bid procedures motion: filed within 10 days of petition date (Armory assets)

  • Bid procedures order: entered within 35 days of petition date (Armory assets)

  • Auction: within 90 days of petition date (Armory assets)

  • Sale order: entered within 100 days of petition date (Armory assets)

  • Sale closing: within 120 days of petition date (Armory assets)

  • APA for assets of BRMC and CRMC/bid procedures order: entered within 180 days of petition date

  • Plan and disclosure statement/Structured dismissal motion: filed within 120 days of the petition date

  • Confirmation order/Structured dismissal order: entered within 180 days of petition date

  • Interim DIP order: entered within two business days of petition date

  • Final DIP order: entered within 30 days of petition date

The lien challenge deadline is the earlier of 45 days after entry of an order appointing counsel to an unsecured creditors committee and Oct. 19, and if no committee is formed, then for any party in interest, 45 days from the date the U.S. Trustee provides notice that no committee will be formed and Oct. 19. The committee’s investigation budget is $20,000.

Other Motions

The debtors also filed various standard first day motions, including the following:
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