St. Vincent’s Catholic Medical Centers (SVCMC)

st-vincent.smThe Challenge
SVCMC went through the Chapter 11 bankruptcy process twice and ultimately liquidated as part of the second bankruptcy.  Kelly represented the PBGC in both cases and led efforts to improve the pension plan funding in the first case and maximize the recovery on the PBGC’s claims in the second case. 

In the first case, the unsecured creditors were looking at receiving a very large recovery on their claims (90-plus cents on the dollar plus additional recovery from litigation).  The emerging SVCMC would continue to sponsor the pension plan but would need to service a significant amount of secured debt that was borrowed to make the distributions.  The debt was to be paid off when a real estate transaction closed after necessary zoning and development approvals were received.
In the second case, the unsecured creditors faced the prospect of no recovery on their claims because of the secured debt borrowed in the first case.  SVCMC began the process of shutting the hospital down and selling assets as soon as it went into bankruptcy.  It was not operationally self-sufficient and could not find a merger partner or purchaser.  The real estate transaction from the first bankruptcy had still not closed because of delays in the approval process, and the New York real estate market had collapsed, making it impossible for the deal to close on its original terms.  The PBGC, unlike most other creditors, had claims at multiple estates.  Because all the assets backed the secured note and values were depressed, it was unclear that sufficient proceeds could be produced to pay the secured debt.

The Strategy
Because funds were being borrowed to pay creditors, there was significant concern that the leverage would be unsustainable for SVCMC if operations did not improve, or if the real estate transaction was delayed. In the first case, Kelly led the case team in its negotiations with SVCMC and the unsecured creditors’ committee to secure additional funding, above the required minimums, for the pension plan.  In the second case, Kelly’s goal was to maximize recovery to PBGC.  She led the team, which included investment bankers retained by the agency.  Her successful strategy maximized the value of the real estate and shielded the assets in other estates from the claims in the main estate.

The Advocacy
Kelly was able to leverage the concern that the PBGC would terminate the pension plan in order to capture a large share of the funds being borrowed to pay unsecured creditors.  She advocated that the large claim that would result from plan termination would cause other unsecured creditors to see their recovery cut in half. 

Kelly was able to leverage the PBGC’s influence because it was a large creditor to push for a more expansive and aggressive real estate sale process to maximize estate value and aggressively assert the rights of creditors at different estates to benefit from the value at those estates.

Results
In the first case, Kelly was able to achieve SVCMC and creditor support for the pension plan to continue and achieve a settlement that would provide additional funding to the plan.  Kelly negotiated for additional cash to be put immediately into the plan instead of being distributed to other creditors.  Those creditors were granted liens on other property that were intended to produce cash recoveries when the real estate transactions closed.

In the second case, Kelly led the case team, in close cooperation with committee professionals, to achieve a more competitive real estate process that resulted in sufficient funds to pay off secured creditors and produce a small recovery for unsecured creditors.  Kelly’s efforts also led to an enhanced recovery for the PBGC from other estates, including the assignment of assets at below face value so that PBGC benefitted from the assets’ performance.  

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