Mercy Iowa City bankruptcy auction will resume ‘next week’

IOWA CITY — Two days have passed since Mercy Iowa City opened an auction for substantially all its assets, but the hospital will head into the weekend without a new owner or operator — notifying a U.S. bankruptcy judge Friday that Mercy officials “anticipate the auction will resume next week.”

The hospital gave no details about why the auction is taking so long.

When filing for Chapter 11 bankruptcy protection in early August, Mercy signed a purchase agreement that would have the University of Iowa buying its assets for $20 million. At least one other bidder since has emerged, which led to the auction.

After a long day of backroom discussions during the auction in attorney offices in Chicago, Mercy filed its first notice Wednesday evening of an “auction continuance” and officials reported plans to continue at “a later date prior to the sale hearing.”

In Friday’s new filing, the hospital asked to "adjourn“ the sale hearing scheduled for Tuesday and ”set a hearing on the motions for a later date.“

Mercy said attorneys representing a committee of unsecured creditors, along with counsel for its largest bondholders, did not object to delaying the hearing. But Mercy hadn’t heard from UI attorneys.

"While (Mercy) has reached out to counsel for the (University of Iowa) about whether the (University of Iowa) consents to the motion, (Mercy) has not received a response as of the time of filing this motion,“ according to the document.

Continuing discussions

The court had been scheduled to address not only the auction and “sale motion” Tuesday but a long list of ancillary motions — including Mercy’s continued use for its daily operations of “cash” that could be used to pay back its many creditors.

Mercy’s largest bondholders Preston Hollow Community Capital Inc. and master trustee Computershare have argued the hospital should be using the millions in their nonprofit foundation — money the creditors can’t access — for its daily operations.

In Friday’s motion, Mercy asked to move the hearing on those issues and the assets sale from Tuesday to “a later date,” possibly the week of Oct. 16. The delay aims to facilitate “continuing discussions” between Mercy, the committee of unsecured creditors, bondholders and the state via UI.

Unknown negotiations

Had the university been the only bidder, an auction for Mercy’s assets would not have been necessary. Attorneys earlier this week confirmed at least one other bid had come in by the Monday deadline — triggering the auction.

Details of that bid haven’t been made public. But Preston Hollow did indicate in previous court filings its plans to “credit bid” — a bankruptcy-related maneuver letting secured creditors bid the debt that a debtor owes them in an auction for the assets.

In this case, Preston Hollow and master trustee Computershare could bid on Mercy’s assets using the $63 million the hospital owes them.

The winning bidder will own Mercy’s assets, free of any of the hospital’s debt, allowing the bidder then to search for a new operator or sell the assets.

If the credit bid was part of the auction, it could have made the UI more than triple its original offer — if the university wanted to win.

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