Medical Properties Trust: Prospect's landlord and lender

analysisUnder a real property asset purchase agreement dated July 10, 2019 between PMH, its subsidiaries and Medical Properties Trust companies, the purchase price for PMH hospital real estate was $1,385,796,096 subject to adjustment; a TRS lender was to lend PMH $112,937,204 (the “TRS Loan”), and a separate mortgage loan of $51,266,700 was to be advanced on one financed property. Samuel S. Lee signed as PMH's Chairman and Chief Executive Officer and for the participating subsidiaries, including Alta Los Angeles Hospitals, Southern California Healthcare System, Alta Newport Hospital, the Manchester, Rockville and Waterbury hospital companies, Prospect Crozer, Prospect ECHN, Prospect CCMC and Prospect DCMH. The buyers of the non-California real estate were MPT property companies whose sole member is MPT Operating Partnership, L.P., including MPT of Waterbury PMH, LLC; the California properties were bought by MPT partnerships; and the TRS lender was MPT TRS Lender PMH, LLC, whose sole member is MPT Development Services, Inc. ¹

analysisAccording to the Rhode Island Attorney General's consultant, summarising the footnotes to PMH's audited statements, on August 23, 2019 PMH closed three transactions with MPT affiliates: the sale of all of PMH's hospital buildings in California (except Foothill Regional Medical Center), Connecticut and Pennsylvania for about $1.4 billion with a 15-year leaseback and options to extend for up to another 15 years; a mortgage loan of about $51 million on the Foothill property at 7.5% maturing in August 2034; and the TRS promissory note of about $113 million. As described in the Attorney General's 2021 decision, from the footnotes and the applicant's stipulation, the three were cross-collateralised and cross-defaulted, with no personal guarantees from Leonard Green, Lee or David Topper, and the hospital operating companies and the Rhode Island real estate were excluded from those arrangements. According to the Attorney General's 2021 decision and its consultant's report, the TRS note bore 7.5% a year with an annual escalator and matured at the earlier of July 2022 or a sale-leaseback of the Rhode Island properties, with about $105.5 million outstanding at September 30, 2020; the decision noted that an unpaid or unrenegotiated note would have subjected the Rhode Island hospitals to a sale-leaseback, and that the 2019 proceeds were used to repay debt assumed in 2018. ²

analysisAccording to PMH's chief restructuring officer, on August 23, 2019 PMH subsidiaries also signed two master lease agreements with MPT affiliates as lessors: one with Prospect CCMC, Prospect DCMH and the Manchester and Rockville hospital companies as lessees, and one with Prospect CCMC, Southern California Healthcare System, Alta Los Angeles Hospitals and Prospect Waterbury. The declaration puts lease obligations under them at $760 million at the petition date. The debtors stated that they do not concede that these arrangements are true leases and reserved that position. The December 2023 letter of the Senate Budget Committee's chair and ranking member characterised the sale as the way PMH could pay off its debt, used in part for dividends: much of its real estate, 14 acute-care hospitals and 2 behavioral health hospitals, went to MPT, after which Delaware County Memorial Hospital in Pennsylvania had to pay $35 million a year in rent; the letter asked the parties to document a $1.55 billion valuation of the properties. ^{3 4}

analysisMPT reported that in the second quarter of 2022 it funded an additional $100 million on an existing mortgage loan secured by a California hospital, that Prospect stayed current on rent and interest until the fourth quarter of 2022, and that it then recorded an impairment charge of about $280 million, reducing the carrying value of the Pennsylvania properties to about $250 million. MPT also stated that under the October 5, 2022 agreements to sell three Connecticut facilities to Yale it was entitled to receive $355 million at closing, and that it was entitled to part of the proceeds of Astrana Health's purchase of most of PHP Holdings. ¹

analysisOn May 23, 2023 Prospect affiliates completed a transaction with funds managed or advised by Centerbridge Credit CS, L.P. and Blue Torch Capital L.P., which provided $375 million of new capital, and with MPT, which, in exchange for reducing about $646 million of obligations owed to it, received senior preferred units representing 49% of PHP Holdings and a convertible promissory note. PHP Holdings issued a convertible note of about $732 million to MPT Picasso Investors TRS, LLC; Prospect DCMH and Prospect CCMC borrowed under a real estate loan agreement with MPT affiliates, about $167 million of which was outstanding at the petition date; and PMH and certain subsidiaries took a $25 million term loan and a $50 million delayed-draw term loan from MPT TRS Lender PMH, LLC as agent. Prospect's $250 million asset-based revolving facility was repaid and its receivables became first-lien security for MPT's delayed-draw lending. ^{2 3}

analysisMPT stated in May 2023 that its $1.6 billion of Prospect-related assets would be reconstituted as an investment of about $513 million in six leased California hospitals under a master lease; a $457 million investment in Connecticut real estate that Yale New Haven Health was expected to acquire, recovered through $355 million of cash at closing and managed-care equity; and a $150 million first-lien mortgage loan plus $100 million of managed-care equity resulting from the transfer of the Pennsylvania real estate back to Prospect. In October 2023 it put its investment in Prospect at $1.1 billion and reported that Prospect had resumed paying contractual rent of about $3 million a month through February 2024 and was to begin full rent on the California portfolio at a mid-8% cash rate in March 2024; that its $75 million delayed-draw term loan to Prospect, secured by insurance receivables, was drawn to $45 million in the third quarter and $65 million afterwards; and that it had recorded about $82 million in the second and third quarters of 2023 from receiving an investment in PHP Holdings instead of cash rent and interest. ^{3 4}

analysisMPT's 2024 annual report states that Prospect leased nine facilities under two master leases running to August 2034, that MPT also held a $155 million first mortgage loan on four Pennsylvania facilities and a $75 million term loan, all cross-defaulted and cross-collateralised, and that Prospect had made no scheduled rent or interest payment since the second quarter of 2024; MPT recorded more than $400 million of impairments and negative fair value adjustments on its Prospect investments in the fourth quarter of 2024. ¹

analysisIn a sworn first-day declaration, PMH's chief restructuring officer stated that in November 2024 Centerbridge proposed $20 million of interim financing and that in December 2024 MPT refused to consent to it, depriving the company of a bridge to a Chapter 11 filing. The declaration also states that on October 21, 2024, in anticipation of a forbearance agreement with MPT and at MPT's demand, PMH's special committee was disbanded and independent director Elizabeth Abrams was replaced by Jeremy Rosenthal. MPT's account of these events was not found in the retained records. ²

analysisThe same declaration puts the group's funded obligations at the January 2025 petition date at about $2.3 billion: about $1.1 billion at the debtors, comprising about $84 million under a hospital revolving facility, $75 million under a hospital term loan, $167 million under the MPT mortgage loan and $760 million of lease obligations under the MPT master leases, while the non-debtor physician business owed $453 million under a term loan and $732 million under convertible notes held by MPT. MPT reported that in March 2025 the bankruptcy court approved a settlement among MPT, Prospect and others allowing Prospect to sell its hospital operations and related real estate with MPT's cooperation, and that in September 2025 it settled with Prospect and Yale New Haven Health System, with $45 million in cash from Yale, the proceeds of the three Connecticut hospital sales and other consideration expected to exceed its debtor-in-possession loan balance of about $100 million; it had also agreed in principle to lease the California hospitals to NOR Healthcare Systems Corp. at stabilised annual cash rent of about $45 million, subject to regulatory approval. Those were expectations stated in MPT's October 2025 earnings release, when its only remaining potential debtor-in-possession commitment was a conditional loan of up to $30 million secured by assets including litigation proceeds. ^{3 2}

analysisOn March 6, 2026 PMH and the other borrowers entered into a backstop loan and security agreement with MPT TRS Lender PMH, LLC providing secured exit financing: a single term loan of up to $30,000,000 for administrative and priority claims and a delayed-draw loan of $25,000,000 from receivables proceeds connected with the sales of the Waterbury, Manchester and Rockville hospitals; $34,398,684.09 of debtor-in-possession obligations rolled into the facility. Under an assumption agreement of the same date the Prospect GUC Trust took over the borrowers' obligations as substitute borrower. The agreement names Paul Rundell as authorised person for the borrowers, Frank Saidara for the designated Prospect entity and Steven Balasiano and Amanda Swift for the GUC Trust, with payments to an account of MPT Development Services, Inc. at JPMorgan Chase. ⁴