Steward Health Seeks Mediation for Sale as Bid Deadline Looms

Bankrupt Steward Health Care System is seeking mediation in a fight over how money from asset sales would be dispersed as a June 24 bidding deadline nears.

Steward, the largest for-profit hospital operator in the US, needs mediation to address a dispute with its main landlord and lenders surrounding land value, it said in a Tuesday filing.

Medical Property Trust Inc. owns the real estate that 30 of Steward’s 31 hospitals sit on, which means potential bidders on Steward’s assets are also bidding or proposing new lease terms on MPT’s land, the hospital system said. Ultimately, the value that bidders attribute to Steward’s assets could be impacted by the value bidders place on MPT’s land, Steward said.

But Steward’s attempts to discuss the issue with its lenders and MPT have gone nowhere, and it now seeks mediation, according to the document, which was filed in the US Bankruptcy Court for the Southern District of Texas.

The hospital system’s committee of unsecured creditors intends to examine the leases between MPT and Steward and determine whether they can be recharacterized as financings—complicating the matter even further, the filing said.

Steward seeks mediation to establish a framework for allocating, between MPT and Steward, the proceeds from asset and lease sales. The company is also aiming to resolve challenges by creditors to the leases, according to the filing.

The hospital system requested emergency relief, so that the matters can be resolved before the bidding deadline on June 24.

“Leaving the negotiation of these issues to occur after the bid deadline on an asset-by-asset basis may chill bidding and cause an overhang on the debtors’ sale process,” Steward said in the filing.

The mediation request is the latest development in the bankruptcy case that has drawn criticism from Capitol Hill. Sen. Elizabeth Warren and two other democratic senators urged the US Trustee’s Office to appoint a trustee to take over the bankruptcy from Steward earlier this month. The senators attributed the bankruptcy to “greed and mismanagement” by Steward’s executives, MPT and private equity firm Cerberus Capital.

Warren again called out Steward on Tuesday when introducing the Corporate Crimes Against Health Care Act of 2024, which would create criminal penalties and authorize the Department of Justice to claw back compensation from private equity executives who loot health-care companies.

In a court hearing Thursday, the court will discuss the mediation request, and Steward’s motion to obtain new financing. The health-care system recently announced that it secured a deal for $225 million in financing to keep its operations running while in bankruptcy.

Weil, Gotshal & Manges LLP represents Steward. Akin Gump Strauss Hauer & Feld LLP represents the committee of unsecured creditors.

The case is Steward Health Care System LLC and Official Committee of Unsecured Creditors of Stewa, Bankr. S.D. Tex., No. 24-90213, 6/12/24.