Healthscope’s troubled Northern Beaches Hospital was the first to go but private buyers are expected to cherry-pick other hospitals.Credit: Renee Nowytarger
Most of Healthscope’s original lenders have already absorbed significant losses after selling their share of the loans to so-called vulture funds earlier this year at as little as 42c for every dollar of debt owed by Healthscope.
Unlike the original lenders – which include some of Australia’s Big Four banks – these opportunistic investors can actually make a lot of money if the receivers pay out as little as 50c for every dollar owed. In contrast, the original lenders like Commonwealth Bank face a loss if they are paid less than 100c in the dollar for their loans.
The sale of Sydney’s Northern Beaches Hospital to the NSW government, yielding $190 million, is a sign of just how quickly lenders can recover their money with one or two big deals where Healthscope still owns the land and hospitals. It has been suggested that Healthscope’s Gold Coast hospital is one of three operations that could find buyers this month at a similar price tag.
So it is easy to see why Healthscope’s biggest landlords, ASX-listed Healthco and Canada’s Northwest, are fighting back against this suggestion that they need to tear up their rental contracts to fatten the returns for these new lenders.
The Healthscope properties form a large part of Healthco and Northwest’s asset base and any rental backdown would deliver a severe blow to their respective investors. Healthco – backed by rich lister David Di Pilla – acquired 11 of the Healthscope hospital properties in 2022 for $1.2 billion.
Di Pilla did not get his reputation for being one of Australia’s most astute corporate deal-makers for nothing. So, it is no surprise that a recent announcement from Healthco explicitly demonstrated how strong its position as landlord is.
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“As previously disclosed, the Landlords have entered into conditional agreements with alternative tenants for all the 11 hospitals owned by the Landlords (Conditional Agreements). The Conditional Agreements include detailed commercial terms which are acceptable to the Landlords,” the ASX update this month, said.
The clear message to lenders was that Healthco has been able to come to terms with other hospital operators with a deal that makes the hospitals viable. The statement does not explicitly say this involves a rent cut.
It explains why the receivers paid up all the back rent owed to Healthco and Northwest until the end of this month to keep them onside as the sales process enters the final stage, and hopefully finalise a fresh rent deal.
But landlords have pointed to the recent financial numbers made public by the Australian Financial Review also suggest that head office costs at Healthscope, and the multimillion-dollar monthly bill for advisers, would also go a long way to making the group viable again.
For their part, the receivers and lenders would be hoping that, it is one thing to threaten to evict Healthscope as a tenant, it is a much tougher ask to actually hand it over to another private hospital operator and keep it running as a significant part of Australia’s health infrastructure.
Everyone is just watching now to see who caves, and whether it is enough to save all the hospitals. Otherwise, taxpayers will be the ones picking up the pieces of a private hospital business that went horribly wrong.
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