Before Chapter 11, Steward Paid $20M to Get There

YOUNGSTOWN, Ohio – In the 90 days before Steward Health Care declared bankruptcy, the company paid nearly $20 million to two nationally known restructuring companies that are guiding its future.

Dallas-based Steward filed Chapter 11 in U.S. Bankruptcy Court in Houston on May 6, reporting $9 billion in debt and $6 billion in revenue. The privately owned company employs 30,000 and operates 31 hospitals across eight states – among them Trumbull Regional Medical Center in Warren, Hillside Rehabilitation Hospital in Howland Township and Sharon Regional Hospital in Sharon, Pa.

Steward plans to auction its hospitals here and everywhere but Florida on June 28. The Florida hospitals will be auctioned July 30.

On May 11, Steward filed motions seeking court approval to continue employing AlixPartners LLP, based in Chicago, and Lazard Freres & Co. LLC of New York.

AlixPartners, a turnaround specialist retained in November, was paid $12,187,348.37 before the bankruptcy filing. According to documents, its duties include managing liquidity, developing a short-term operating plan and supporting Steward’s management team in developing and assessing strategic alternatives. AlixPartners stands to earn a restructuring completion fee of $2.5 million if half of the hospitals or other assets are sold. In the meantime, it will be paid hourly fees ranging, according to job title, from $1,495 to $230.

John R. Castellano, partner and managing director of AlixPartners, has been named chief restructuring officer for Steward Health.

Lazard Freres, an investment banker retained April 24, was paid $7,792,500 pre-bankruptcy. Its duties involve evaluating financial alternatives and soliciting, reviewing and negotiating the terms and conditions of financings and related transactions. “Since 1990, Lazard’s professionals have been involved in over 500 restructurings, representing over $1 trillion in debtor assets,” according to Tyler W. Cowan, global head of the restructuring and liability management group at Lazard.

Cain Brothers, a division of KeyBanc Capital Markets Inc., also is providing investment banking services to the company.

In filing Chapter 11, Steward cited delays in the closing of the sale of its physician network to UnitedHealth Group, higher labor and materials costs, insufficient government reimbursements and the aftermath of the Covid-19 pandemic.

“Steward Health Care has done everything in its power to operate successfully in a highly challenging health care environment. Filing for Chapter 11 restructuring is in the best interests of our patients, physicians, employees, and communities at this time,” said Dr. Ralph de la Torre, CEO of Steward.

Steward owns eight hospitals in Massachusetts, where it has been embroiled since 2017 in litigation over the company’s refusal to submit financial information to the state.

Massachusetts Gov. Maura Healey, who previously served as state attorney general and sued Steward for noncompliance, blasted the health care company and its CEO during an interview May 12 with Boston TV station WCVB.

“Ralph de la Torre, basically, was incredibly greedy and – along with the management team – stripped a lot of assets from those facilities, and so we’re in this situation,” Healey said.

Copyright 2024 The Business Journal, Youngstown, Ohio.