BOSTON -- Symmes Hospital in Arlington, Mass., yesterday extended the deadline on an offer to redeem $15.75 million of bonds issued in 1990, as the hospital works to stave off bankruptcy.
The redemption of at least 85% of the bonds is needed under a proposed buyout agreement with nearby Lahey Clinic Hospital Inc./Advantage Health Corp. of Burlington, Mass.
Lahey agreed to purchase Symmes under the condition that all of Symmes' assets be transferred to Lahey without any liens, claims, or encumbrances, including those that might be used to secure bonds. The 1990 bonds are backed by a mortgage lien on all of the assets of Symmes Hospital.
Symmes' president and chief operating officer, David Speltz, said yesterday that the hospital was encouraged by the response from bondholders so far, and was optimistic about reaching the 85% level. Speltz said he does not know how close the tender offer has come to reaching the 85% goal.
One factor the hospital has in its favor is that 62% of the issue is owned by two investors. One is a large mutual fund and the other is a consolidated group of regional investors.
Both bondholder groups have committed to tender their bonds if doing so would achieve the 85% level.
Originally, bondholders had until today to tender their bonds. But the offer was extended so that the hospital could try longer to meet the needed 85% goal.
The hospital has agreed to pay bondholders who tender their bonds no less than 102% of the face value. But if the issue, sold for the hospital by the Massachusetts Health and Educational Facilities Authority, is not tendered, the hospital will go into bankruptcy, according to David Spackman, a partner at the Boston law firm of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, which is counsel to the hospital on its tender offer.
The issue currently pays 9.80% interest, and the bonds that mature July 1, 1999, will pay 10.75.%. The bonds were sold as part of a special arrangement with the federal government that allowed the hospital to sell bonds to replace a 1982 issue.
If the 85% level is reached, bondholders who do not tender their bonds will have their debt defeased anyway under the terms of the 1990 indenture, and the interest rate will decline to 7.3%.
The 85% level would remove a $17 million liability for Symmes over the life of the bonds, allowing the hospital to pay the required 102% to bondholders and set up an escrow account to pay the holders of the defeased debt.
In 1992, the hospital's revenues began to decline at a rapid pace. The most common problem for independent hospitals in the Boston area is the increasingly tough competition for managed care contracts. Symmes' board found it impossible to compete with the larger hospital systems in the region, according to the tender offer.
"What we are seeing right now is very similar to what happened in banking, with clustering of smaller entities into large conglomerates," Speltz said. "There is almost a frenzy right now for facilities to merge."
Speltz said that almost two-thirds of a chief executive officer's time is spent trying to decide how and with whom to merge services.
For the. two quarters ended Dec. 31, 1993, and March 31, 1994, the hospital lost $206,000 and $387,000, respectively.
After a two-year search, the hospital agreed that the best way to survive and continue to provide community service was to be bought by Lahey Clinic.
"Essentially, hospital officials decided that Symmes cannot continue to operate as a stand-alone facility," Spackman said. "We have had a positive response so far, but it is too soon to tell what the final outcome will be."
Speltz said Symmes' situation reflects a national trend in the health care industry. He said that the plan to reform health care by President Clinton will essentially mark the end of the stand-alone hospital. But he does not necessarily see that as a negative development.
"The question is really whether these changes are going to mark a positive or a negative for the patient," Speltz said. "With our new partners, our overhead will decline and we will be getting some high-tech equipment that we could never have afforded on our own."
But Speltz also said that even if Clinton is unsuccessful in getting his health care package through Congress, the business community will force the government to make some changes.