UPDATED: Creditors question viability of North Philadelphia Health System
Unsecured creditors in North Philadelphia Health System's bankruptcy on Tuesday filed objections to the tax-exempt organization's plan to go $3 million into debt to help it get through bankruptcy, arguing that the system must prove its viability before borrowing more.
The creditors committee, represented by Edmond M. George of Obermayer Remann Maxwell & Hippel LLP, in a filing Tuesday questioned "whether there is a reorganizational plan possible for the debtor, or whether liquidation should be the focus."
Lawrence G. McMichael, of Dilworth Paxson LLP, North Philadelphia Health System's bankruptcy attorney, said the system would provide information to allay the creditors' concerns.
"It's not going to fail. The debtor is doing everything it should be doing to preserve viability," McMichael said in an interview Tuesday.
"All options are open right now. The whole system could be sold. It could be refinanced. There might be a merger," McMichael said
NPHS filed for bankruptcy protection at the end of last year because it could not afford a $400,000 mortgage payment due Jan. 1 and wanted to protect millions in cash held by the mortgage trustee.
The bankruptcy was portrayed as a maneuver to eliminate leftover liabilities from St. Joseph's Hospital, which NPHS closed last March, after the Pennsylvania Department of Human Services pulled a long-running subsidy. St. Joseph's is under an agreement of sale for $8.1 million.
The state human services department said in a statement Tuesday that it shared many of the unsecured creditors' concerns. "The management at NPHS will need to make some concessions if they are to successfully emerge from bankruptcy," the agency said.
NPHS's plan is to continue providing drug and alcohol services and psychiatric care at Girard Medical Center, at Eighth Street and Girard Avenue, but the committee of unsecured creditors said it is not clear that Girard can be operated profitably.
The committee said the plan to borrow $3 million from Gemino Healthcare Finance LLC, $1 million which would be used to repay pre-bankruptcy debt, should not be approved until NPHS reduces executive compensation and other expenses.
"The debtor has refused, for example, to reject a lease for a Lincoln Navigator paid for, financed by, insured, and maintained by the debtor for Mr. Walmsley, the debtor's president. This cavalier approach to the debtor's finances in this Chapter 11 is disturbing," the filing said.
Walmsley recently gave up the Navigator, McMichael said. The cost of that vehicle was $1,173 per month, an earlier NPHS filing said.
Walmsley's annual pay is $459,504, a Feb. 17 filing said. That makes Walmsley one of the highest-paid health-care executives in the region relative to the size of his organization.
Since Feb 17, Walmsley and other executives took a 10 percent pay cut, McMichael said.
One expense that NPHS no longer bears is the salary of Dominic A. Sabatini, who for years was in the unusual position of being paid as chairman of a tax-exempt organization. That ended Dec. 30. Sabatini was paid $197,401 for 30 hours a week in 2014, the most recent year available.
Members of the unsecured creditors committee are Atlantic Diagnostic Laboratories LLC, of Bensalem; Independence Blue Cross LLC, of Philadelphia; Peco Energy Co, of Philadelphia; and Keystone Quality Transport Co., of Springfield, Delaware County. Combined, they are owed $11.7 million, all but $1.1 million of it to Indpendence, for employee benefits.