Thu 02/11/2021 17:50 PM
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Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
First Day Hearing Agenda

Mercy Hospital and Medical Center is a 412-bed general acute care hospital in Chicago
Facing mounting losses, seeks to close the hospital on May 31
Mercy’s sole member, Trinity Health Corp., to provide $30 million in DIP financing to stabilize “financial situation”

Mercy Hospital and Medical Center, a 412-bed general acute care hospital in Chicago, filed for chapter 11 protection on Wednesday, Feb. 10 in the Bankruptcy Court for the Northern District of Illinois, along with its sole member, Mercy Health System of Chicago. The debtors seek to use the bankruptcy to reduce monthly losses which were “nearly” $9 million in January, wind-down services and close the hospital by the end of May. Assuming that the debtors are able to close the hospital on May 31, then they say that they “intend to file a plan (or make other arrangements to effectuate a transaction) that pays each and every creditor with an allowed claim in full (with the necessary financial support coming from Trinity).” Continue reading for our First Day team's case summary of the Mercy Hospital chapter 11 filing and Request a Trial for access to the linked documents and analysis as well as our coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities.

The case would be funded by $30 million in DIP financing from Mercy’s sole member, Trinity Health Corp. “to stabilize their financial situation, restructure their operations to become an outpatient center, explore sale options under Section 363 of the Bankruptcy Code, and if needed, close the Hospital’s inpatient operations.” The debtors joined the Trinity Health Corp. ministry in 2012. Trinity, which is a non-profit, has not filed for chapter 11 protection.

The first day hearing has been scheduled for Friday, Feb. 12 at 2 p.m. ET.

The company reports $100 million to $500 million in both assets and liabilities. The company’s prepetition capital structure includes:

  • Secured debt:

    • HUD loan: $24.3 million

  • Unsecured debt:

    • Trinity Health Corporation: $136.9 million

    • Accounts payable: $28.7 million

    • Third party payors: $6.7 million

  • Equity: The sole member of Mercy Hospital and Medical Center is Mercy Health System of Chicago, whose sole member is Trinity Health Corporation.

The debtors are represented by Foley & Lardner in Chicago. The case has been assigned to Judge Timothy A. Barnes (case number 21-01806).


Mercy Hospital and Medical Center has 412 beds and offers inpatient and outpatient services. After experiencing financial issues and being on the “brink of closure” in the 1990s, and being independent for “nearly” 160 years, the debtors joined the Trinity system. Since it purchased the hospital, Trinity has invested approximately $130 million in infrastructure, $150 million in funding for short-term operating needs and has “suffered financial statement impairments of more than $190 million because of the Hospital.”

Nevertheless, in light of mounting losses, Trinity began a formal process to try to “save” the hospital, beginning with an assessment in 2016 that showed that no scenario under a variety of service reductions and/or reconfigurations “was financially viable.” As a result, Trinity began to explore selling or transferring the hospital to a third party or affiliating with another health system, including a process that involved more than 20 potential partners over an 18 month period, but which led to no expressions of interest.

Based on a conclusion that the hospital needed to transform from an inpatient to outpatient model, in August 2019, the hospital approached the Illinois Department of Healthcare & Family Services to discuss closure of the hospital and its transformation to an outpatient care center to provide preventative and urgent care, diagnostic services and care coordination.

As a result, the department convened a group - the South Side Coalition (consisting of Mercy, St. Bernard Hospital, Advocate Trinity Hospital and South Shore Hospital) - to discuss options. The group signed a non-binding memorandum of understanding to create an independent health system and build one or two new, “state-of-the-art” hospitals and three to six outpatient centers to ultimately replace the four hsopitals. The plan was to be funded with public and private commitments over 10 years with a total investment of $1.1 billion, with the state committing $520 million over five years. However, in May 2020, the Illinois legislature “changed course” and elected not to fund the plan, after which the coalition disbanded. At that point, the debtors and Trinity determined to discontinue Mercy’s “categories of service and all of its authorized inpatient beds,” and that an outpatient care center was needed for the community.

Ultimately, however, the Illinois Health Facilities and Services Review Board issued a notice of intent to deny Mercy’s application to discontinue current services at the hospital. The debtors and Trinity are scheduled to appear in front of the review board again on March 16, 2021, but say that since they first filed the application in August that losses have increased from $4 million a month to “nearly” $9 million in January.

Inpatient services are being replaced by outpatient care because of advancement in medicine and payor demands. Further, the population that the hospital serves has declined and also “disproportionately” suffer from chronic diseases that can be treated more cost effectively through outpatient services through early detection.

The debtors say that the “large healthcare systems and academic medical centers to the north, south and west of the Hospital adapted by making material investments in outpatient services which, along with new and updated facilities, allowed them to dominate positive consumer opinions in the market and siphon off commercial patients, Medicare patients and outpatients.” However, Mercy’s average daily census has dropped because it has not had the resources to adapt, and as of Feb. 9 there were only 74 inpatients at the hospital.

The debtors' largest unsecured creditors are listed below:


10 Largest Unsecured Creditors
Creditor Location Claim Type Amount
Biofire Diagnostics, LLC Salt Lake City Trade $  129,845
General Mechanical Services Wood Dale, Ill. Trade 108,601
United Security Services Inc. Chicago Trade 65,371
Olympus Financial Services Center Valley, Pa. Trade 45,542
Angelica - Chicago Oakbrook Terrace, Ill. Trade 41,650
Ann & Robert H. Lurie
Children's Hospital of
Chicago Trade 39,996
American Red Cross Washington Trade 35,647
IPC Healthcare Inc. Knoxville, Tenn. Trade 33,333
C J Erickson Plumbing Co. Alsip, Ill. Trade 29,881
Boston Scientific Corp. Marlborough, Mass. Trade 29,340

The case representatives are as follows:


Role Name Firm Location
Debtors' Counsel Edward J. Green Foley & Lardner Chicago
Matthew J. Stockl
Jasmine Reed

DIP Financing Motion

The debtors seek approval of $30 million in secured, superpriority DIP financing ($5 million on an interim basis) from Trinity Health Corp. pursuant to a DIP term sheet, in the form of a continuation of a shared services agreement with Trinity and “an increase in the ‘due to’ to Trinity.” The DIP loan would be in the form of advances on an “as needed basis” for, among other things, “(i) payments made by Trinity to vendors and third-party service providers of the Debtors on account of services rendered or goods provided to the Debtors pursuant to which Trinity is entitled to reimbursement from the Debtors; and/or (ii) advances of credit by Trinity to the Debtors on account of services rendered or goods provided to the Debtors under its certain shared services arrangements among Trinity and the Debtors pursuant to which Trinity is entitled to reimbursement from the Debtors under the Trinity Shared Services arrangement.”

The debtors say that because they do not have any prepetition secured lenders with an interest in their cash that they are entitled to use their cash without the consent of any party.

The debtors project that they will have $3.1 million of operational and $189,000 of non-operational cash as of the petition date, and intend to use approximately $3.3 million in weekly receipts to fund operations, with any shortfall filled by the DIP. The debtors say that due to the DIP, their cash on hand and accounts receivable will remain stable over the 13-week period covered by the proposed budget.

The DIP financing bears interest at 5%, a rate that the debtors say is “well below market for healthcare entities in bankruptcy, which is currently in the 10 to 12 percent range.” The default interest rate is 8%. The DIP financing matures on July 1 or upon other customary events.

The DIP liens would include avoidance actions and their proceeds.

In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).

The carveout for professional fees is $250,000.

The lien challenge deadline is 75 days after entry of the interim order or 60 days from formation of an official committee of unsecured creditors. The UCC lien investigation budget is $15,000.

Other Motions

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

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