Trios bankruptcy approved, saving 1,000 jobs. You'll still be taxed

Kennewick's public hospital district emerged from bankruptcy Wednesday with a firm plan to keep Trios Southridge Hospital open.

U.S. Bankruptcy Judge Frederick Corbit approved a plan in Spokane that sets the stage for the hospital district to sell the hospital and other assets to RCCH Healthcare Partners.

The Tennessee-based healthcare operator is also pursuing a deal to acquire Lourdes Health in Pasco.

Corbit's approval follows a frenzied series of meetings to win an OK from the district's unsecured creditors.

In the end, the district agreed to sweeten the pot by injecting $5.25 million, including $1.3 million in future tax money.

"I am pleased and appreciative of our employees and patients who have supported us throughout this challenging process," said Marv Kinney, president of the hospital district board, in a news release.

The health district will continue as an independent, taxing district providing limited health education in the community. Some tax revenue is earmarked to pay off unsecured creditors as well as continuing legal fees.

The hospital district levied a tax of 13.35 cents per $1,000 of assessed property value this year, generating a total of $1.38 million.

The district sought protection from creditors under Chapter 9 of the U.S. Bankruptcy Code almost exactly one year ago as $221 million in debt from its ill-fated move to build Trios Southridge Hospital overwhelmed its finances.

Scott Landrum, the district's interim CEO, said if the plan hadn't been approved they would have had to close the hospital and lay off its 1,000 employees.

Under terms of the RCCH purchase agreement, all Trios employees will be terminated and RCCH will have the authority to rehire them subject to its customary hiring process, including background checks and drug screenings.

Spokesman Jeff Atwood said RCCH is committed to hiring all Trios employees but they will have go through the standard new employee hiring process.

Trios said the plan reduces its debt by $350 million, though the figure is not referred to in the final plan. RCCH valued the deal for the Trios assets at $78 million when it formally offered to buy the Trios assets in May.

Also, Corbit's approval sets the stage for Trios and RCCH to pursue approval from the Washington Department of Health, a necessary step before the acquisition can close. Hospital officials have said they expect that to happen within 30 to 60 days of confirmation.

RCCH cheered the end of the bankruptcy case and said it's eager to move ahead with the next stage of the acquisition.

"Yeah for the hospital," said Atwood.

Kennewick is the fourth Northwest market for RCCH, a $1.7 billion for profit that operates hospitals in Olympia, Missoula, Mont., and McMinnville, Ore.

Atwood said the organization pursues hospitals in markets where it can leverage its capital and recruiting strengths.

"We looked at the Tri-Cities and thought, we can clearly be impactful here," he said.

Under the transaction agreement, if the deal does not close by Dec. 31, 2018, the non-responsible party could be held liable for damages, including attorney's fees and costs. The transaction agreement does not specify what that amount would be.

The third and final plan came together in the week leading up to Wednesday's confirmation hearing in U.S. Bankruptcy Court.

On June 14, attorneys and a mediator met from 9 a.m. to 10:45 p.m. in New York City to resolve the unsecured creditors objections.

The resulting agreement provided the additional $5.25 million for creditors, including $3.95 million in cash and up to $1.3 million from future taxes.

Then, the hospital district's elected board approved the amended plan following an closed-door executive session Monday night.

The unsecured creditors withdrew their objection on Tuesday.

The district also expects to spend up to $1.4 million in future tax revenue to pay for its continuing legal dispute with the University of Puget Sound over the 9,000 acres bequeathed to the hospital district and the Tacoma school in the '70s by the late J.R. and Alice Ayers.

The Ayers appointed the hospital district to manage the property but to divide proceeds equally with the university.

The university is seeking compensation, saying the district failed to share proceeds when it sold some of the land and that it falsely claimed that it alone held the valuable water rights even though both parties shared the cost to secure them.

The hospital district and RCCH agreed to cooperate on developing a plan for the district's 33 percent ownership share the Tri-Cities Cancer Center and its 28 percent share in the High Desert Surgery Center.

Court documents indicate that legal and outside consulting fees have topped $4 million. Foster Pepper, the hospital district's Seattle law firm, has billed $1.8 million. Attorneys representing creditors as well as the third-party operator have collectively billed the district nearly $2.23 million.

The Kennewick Public Hospital District pursued development of the Southridge hospital after voters rejected a tax levy in November 2007. Though 65 percent said no to the new tax, the district believed there was community support for a new facility to augment the 1950s hospital in downtown Kennewick.

It believed the hospital would justify the expense and Trios Southridge opened in 2014. It failed to meet financial expectations.

The district posts select documents about the bankruptcy at cases.gardencitygroup.com/kphd/.

This story was originally published June 20, 2018 at 5:11 PM with the headline "Trios bankruptcy approved, saving 1,000 jobs. You'll still be taxed."