In January, Lapis Advisers LP loaned Astria Health $10 million.
Astria hoped the loan would keep it afloat while it resolved issues with the vendor managing its revenue cycle — mainly, collecting revenue. Those issues had kept the organization from banking tens of millions of dollars over several months, according to Astria officials.
Those issues persisted, which ultimately forced Astria Health to file for Chapter 11 bankruptcy protection May 6.
Astria officials say bankruptcy provides a path to fiscal viability, achievable by switching to a new revenue cycle management vendor.
Lapis Advisers, the organization’s largest secured creditor, is skeptical.
Lapis attorneys argue that Astria Health has deeper financial issues that won’t be easily fixed through restructuring. They’ve pushed for a sale.
Astria Health’s “financial and other issues are longstanding,” attorneys for the organization wrote in objecting approval to Astria Health’s request to get immediate debtor-in-possession financing, funding provided to organizations under financial distress, such as bankruptcy.
“(Astria has) been in a nonstop turnaround mode for two years and the Chapter 11 cases are only the latest in a series of challenges, many of them ongoing that have hampered … business during their entire tenure as a hospital system.”
Lapis and Astria
Lapis Advisers has significant knowledge of the organization’s finances and operations, Astria Health’s attorneys have noted in bankruptcy proceedings.
That lender-borrower relationship dates to late 2017. Astria Health, a nonprofit based in Sunnyside, secured a $34.5 million loan from the Washington State Health Facilities Authority to refinance loans it used to acquire two hospitals — now Astria Regional Medical Center in Yakima and Astria Toppenish Hospital — and a network of clinics.
Lapis Advisers financed that loan and later provided additional funding.
Officials at Lapis had been receiving daily cash reports and other financial information, Samuel Maizel, a Los Angles-based attorney representing Astria Health, said during a U.S. Bankruptcy Court hearing last week.
In a bankruptcy filing, Lapis argued that Astria has additional issues beyond a vendor unable to collect revenue.
That includes, Lapis Advisers attorneys wrote, unsuccessful efforts at boosting revenue, senior management turnover, “material deviations” between management’s financial expectations and financial results and accounting issues.
Astria Health’s “track record belies (its) storyline as to their prospects for recovery,” Lapis Advisers attorneys wrote. Lapis Advisers also argued that solely pursuing a restructuring strategy does not protect Astria’s creditors, which it claims is a “fundamental right” in Chapter 11 bankruptcy cases.
Lapis Advisers and Astria Health went head-to-head May 8 during the court hearing, where Judge Frank L. Kurtz considered several motions, including one that would provide Astria Health $28 million in debtor-in-possession financing.
That motion came as Astria scrambled to make payroll for the week.
Lapis Advisers offered to extend enough financing — $12 million — to cover payroll for two weeks and again pushed for Astria Health to pursue a sale process.
“It allows a chance to negotiate with Mr. Maizel to come up with something that works for both of us,” said Ian A. Hammel, a Lapis Advisers attorney.
However, Maizel, Astria Health’s bankruptcy attorney, argued that Lapis Advisers had ample opportunity to make its debtor-in-possession offer before the hearing, especially since it was already intimately familiar with the organization’s operations and finances.
Maizel said Lapis was using its last-minute offer to force Astria Health to sell.
“It’s just enough to (cover) payroll … so they can keep us on a tight leash to force us into an immediate sale process,” he said.
Ultimately, Kurtz approved the motion to provide Astria the financing it had secured from Los Angeles-based JMB Capital Partners Lending. Astria Health had secured $36 million, but only sought approval for $28 million of that amount. A request to approve the rest of the amount could come at a future hearing.
Kurtz said while Lapis Advisers had a strong argument — that there ought to be a multifaceted approach to tackling Astria’s financial issues — he felt Lapis’ offer wasn’t fully formed and wouldn’t ensure that Astria Health’s three hospitals remained open.
“Today, I have to deal with the prospect of the results of this hearing with three operating (hospitals) not operating next week or having such a cloud over their operation that they wouldn’t be able to continue,” Kurtz said.
EDITOR’S NOTE: The Yakima Herald-Republic is among the vendors affected by Astria Health’s bankruptcy.