Trustee question: Is $20M for Mercy Iowa City a good deal?

IOWA CITY — Although Mercy Iowa City has agreed to an initial $20 million offer to sell substantially all its assets to the University of Iowa, hospital officials Wednesday told creditors, retirees and others that they didn’t perform any appraisals or assessments of their property before making the deal.

“The real estate is listed with a certain value, but that's just the net book value, not the market value,” Janet Reasoner, assistant U.S. trustee for the U.S. Bankruptcy Court in the Northern District of Iowa, said to Mercy officials during a Wednesday meeting of creditors. “I think for informing creditors and parties with an interest in this case, we're really trying to figure out if the proposed $20 million sale to the stalking horse is a good deal or not.”

Mercy’s Chief Restructuring Officer Mark Toney said Mercy “has not performed any appraisals of the real estate or plant property and equipment.”

Mercy — a 150-year-old community hospital with 18 clinics that last year saw 140,000 outpatient visits in addition to the main campus’ 5,000-some inpatient admissions and 30,000 emergency room visits — in financial disclosures required by the court, reported its total “net book” land and building value is $30.4 million. That includes $115.6 million in perceived depreciation.

But recent property assessment records from the communities in which Mercy Hospital and its clinics sit reveal an assessed value of all 19 properties being sold topping $137.3 million, according to a review by The Gazette published last month.

“Are you aware of the assessed value of the debtor’s real estate holdings?” Reasoner asked Mercy’s Chief Financial Officer James Porter. “I am not,” Porter replied.

Mercy’s primary bondholder and master trustee — still owed more than $62 million in outstanding debt — have asked a judge to slow down the proposed sale to give other prospective bidders more of an opportunity to outbid the UI’s initial $20 million offer.

Reasoner, in trying to determine what all the university aims to buy with its $20 million, Wednesday asked about contracts Mercy holds, businesses in which Mercy has a stake, patient records, pension plans, its foundation — even Mercy vehicles.

“The vehicle values are undetermined and depreciation schedules are not available. Can you tell me why not?” Reasoner asked.

“The current vehicle values are not determined because we did not have a valuation performed of the vehicles,” Porter said.

In addition to its solely-owned operations, Mercy holds stock and interests in other entities and ventures — including its 51 percent stake in Corridor Radiology LLC and 51 percent ownership of Eastern Iowa Rehabilitation Hospital LLC. When asked if the university would be purchasing those stakes as well, Toney said yes to the radiology enterprise and no to the rehabilitation hospital.

“Do you know what the value of that entity is?” Reasoner asked of Corridor Radiology, given it is part of the purchase agreement.

“I do not know the value of what it is,” Toney said. “It is part of the total price.”

As for Mercy’s share of the rehabilitation hospital, Toney said officials will “will work to maximize any value in the asset and for the benefit of the estate.” However, “at this time, Ms. Reasoner, we do not have a value on that asset,” he said.

When asked about Mercy’s patient records and if those will go to the university, officials said that’s not viewed as an asset as much as an assumption that UI would take those on.

“The records belong to the patient, they do not belong to an institution,” Toney said. “And ensuring that those records are available to our patients is very important and it's part of the proposal made by the university.”

During the hearing, Mercy retirees and pensioners were allowed to ask questions — including what could happen to the pension payments they’ve been promised. Toney hinted at an unsure future, acknowledging the pension plan is not fully funded.

“The debtor is unable — and I say this cautiously and respectfully to the pensioners — at this juncture, we do not know the outcome of the pension plan,” he said. “We are focusing on trying to sell the assets of the hospital and working on solutions for the shortfall of the pension plan. But at this juncture, we do not know what the outcome will be.”

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