A landlord of failed private hospital operator, Healthscope, warned it would not be forced into rent concessions to pump up profits for opportunistic lenders who announced a rescue plan for the group on Friday as a not-for-profit.
“The real purpose of the proposed Healthscope PurposeCo is to enrich offshore hedge funds at the expense of Australian taxpayers,” said Richard Roos, the co-head of Northwest’s Australasian operations.
“This sets a dangerous precedent if debt holders can successfully deploy a strategy to increase their returns by converting to a charitable entity and taking millions of Australian taxpayers’ dollars.”
The hedge fund reference was to Britain-based Polus Capital and US group Canyon Partners, which hoovered up a significant amount of Healthscope’s $1.7 billion loan for as little as 50¢ in the dollar, and stand to make a significant profit even if the group cannot pay back all the debt.
Northwest owns 12 of the Healthscope hospital properties and Healthco – backed by rich lister David Di Pilla – owns 11.
On Friday, the receivers – who were appointed to sell Healthscope on behalf of the lenders – announced a plan to keep its remaining operations intact as a not-for-profit operation following its financial collapse last year.
It followed the rejection of an offer for Healthscope’s Prince of Wales Private in Sydney, which was the last offer being considered for five of the company’s so-called crown jewels, which were put up for sale to the highest bidder.
Onerous rents were named as one of the issues that had led to Healthscope’s financial collapse last year. The receivers will commence negotiations for reduced rents now that lenders have opted to keep the rest of Healthscope intact as a not-for-profit. As a not-for-profit, Healthscope will not have to pay about $100 million in payroll tax each year.
The receivers from McGrathNicol, led by Keith Crawford, said this plan was the only option that would keep all of Healthscope’s hospitals open and avoid job losses. “The solution we have put forward is the only one that keeps all hospitals open and jobs secure,” he said.
Crawford said NorthWest’s own proposal included a not-for-profit operator and rent concessions, but he planned to engage with them about the Healthscope plan.
“We look forward to NorthWest accepting our existing offer to sit down and be briefed on our plan in good faith.”
The private hospital sector provides about 70 per cent of elective surgeries in Australia, taking immense pressure off state and federal governments.
The receivers also sent letters to the landlords requesting that they state what rent cuts they were prepared to offer, but the receivers would also need the landlords’ approval for the Healthscope rescue to go ahead.
Roos said: “There is no deal between the landlords and PurposeCo. In fact, no information has been provided to us on how the entity can possibly be viable when all the profitable lender-controlled assets have been sold off.
“If this entity fails again, it will be at the expense of all Australians.”
The receivers rejected a proposal from Canada’s Northwest Healthcare to carve off the 12 hospitals – where it acts as landlord – in a deal with not-for-profit Calvary for about $140 million. Roos indicated that Northwest still planned to forge ahead with this plan.
“We are 100 per cent committed to our binding deal with Calvary, which will ensure all of our hospitals remain open through a partnership that is committed to a long-term investment in these hospitals and Australian healthcare,” he said.
“This isn’t about being unwilling to make rent concessions; it is about our belief that Calvary are the appropriate stewards of critical community health assets rather than offshore distressed debt lenders.”
Healthscope’s original lenders still face a significant loss despite the recent sale of four hospitals. These lenders include some of Australia’s big banks, including the Commonwealth Bank and Westpac.
Four hospitals were sold off in Melbourne, Canberra, the Gold Coast and Hobart and Sydney’s Northern Beaches Hospital was handed back to the NSW government for $190 million.
Healthco, which will announce its interim results next week, said previously that it had entered into conditional agreements with alternative tenants for all 11 of the hospitals it owned, which included “detailed commercial terms which are acceptable to the landlords”.
Australian Medical Association president Dr Danielle McMullen welcomed the Healthscope rescue deal, but she said private hospitals remained under significant financial pressure.
“We remain concerned more closures will follow unless meaningful reform occurs and private hospitals can operate on a more sustainable financial footing,” he said.
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Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.Connect via email.