BlueMountain investment firm could put $250 million in DCHS
Published in the Aug. 5-18, 2015 issue of Morgan Hill Life
By Staff Report
Saint Louise Regional Hospital in Gilroy, South County’s only hospital, could be sold if the California Attorney General approves.
Morgan Hill Life file photo
Financially-strapped Saint Louise Regional Hospital has a new deal on the table to sustain medical care in the South Valley. BlueMountain Capital Management, a private investment firm, is working with the Daughters of Charity Health System board of directors to recapitalize its six California operations with more than $250 million. Also in the proposed deal is BlueMountain sponsoring Integrity Healthcare to manage and operate the DCHS’s hospitals and medical foundation.
Under the terms of the transaction, the DCHS board will transfer control of the six hospitals – O’Connor Hospital in San Jose, Seton Medical Center, Seton Coastside, St. Francis Medical Center, St. Vincent Medical Center and Saint Louise Regional Hospital – to an independent board of directors, which will direct hospital operations. Integrity Healthcare, an entity owned by BlueMountain and formed to oversee the hospital group, will provide key management services and day-to-day operational support.
“I’ve heard a lot of optimism about it so I am going to be optimistic, too,” said Morgan Hill Mayor Steve Tate about the deal which was announced July 17. “There’s no mention in anything I’ve seen about DePaul (Health Center in Morgan Hill), so it is a concern at least until we learn more. Our goal is to improve medical services for Morgan Hill and we are very open to working with BlueMountain or whoever they designate to make that happen.”
For a quarter of a century, Saint Louise has operated in South Valley. First based in Morgan Hill, it moved to Gilroy in 1999. The DCHS is losing an estimated $10 million a month and can no longer financially continue to run their hospitals in California.
Prior to BlueMountain, DCHS was working on a deal with Prime Healthcare which had promised to commit $150 million in capital improvement, assume all debts and pay off nearly $750 million in tax-exempt bonds, fully fund all pension plans and retain the collective bargaining agreements at each facility. California Attorney General Kamala Harris needed to approve the Prime deal with DCHS. She put on conditions, such as Prime maintaining the hospitals as acute care facilities with emergency services for 10 years. Prime could not accept Harris’s conditions and bowed out of the purchase.
If approved by Harris, the new transaction with BlueMountain will maintain DCHS and its hospitals as nonprofit entities. It will include an option for BlueMountain, which is a global investment firm with more than $21 billion under management, to purchase the health system after three years. The deal was approved unanimously by the DCHS board of directors and each hospital’s board of directors.
DCHS President and CEO Robert Issai said in a press release of the proposed transaction: “In evaluating candidates to manage the hospitals, our priority was to seek the strongest bidder who could provide the greatest long-term financial stability while honoring the obligations to our associates, physicians, retirees and other constituents. The transaction represents an extremely attractive opportunity for CHS, allowing it to continue its operations and missions as a nonprofit system with the support and backing of strong and well-qualified partner organizations.”
With BlueMountain, he said, the communities served by the DCHS hospitals will have uninterrupted access to high quality health care. Current and former hospital employees will see their current pension benefits remain the same, he said.
Details of the agreement between BlueMountain and DCHS include:
Access to $250 million in new capital to enable DCHS to repay outstanding obligations, provide operational liquidity, and invest in physical plant improvements and operations.
Full assumption of current collective bargaining agreements with the hospital unions.
Maintaining philanthropic foundation.
DCHS filed its application with Harris at the end of July. She has 105 days to make a decision.
