Hospital Infused with Capital
Byline: Los Angeles Business Journal, February 06, 2006
KGI Capital Partners, a division of Kibel Green Inc., announced recently that its client, Sherman Oaks Hospital of Sherman Oaks, California ("SOH"), has been acquired by Prime Healthcare Services, Inc. ("Prime"), a multi-hospital operator based in Desert Valley, California. Previously owned by Sherman Oaks Health System, a California nonprofit public benefit corporation, SOH is a 153 bed acute care facility that has been serving its community since 1958. SOH provides a wide range of medical/surgical services and is also the home of the internationally renowned Grossman Burn Center. In the early 1990s, SOH raised senior debt through a public bond issue. While this financing provided much needed capital, the leverage and interest load overburdened its capital structure. As a result, SOH could not generate internal cash flow or secure outside financing needed to fund necessary capital improvements, including expanding infrastructure to accommodate patient volume, updating medical equipment, and complying with earth-quake standards. To avoid the fate of many other regional hospitals that have struggled to survive or ultimately went out of business, the Board of SOH made the difficult decision to seek a buyer that could continue to provide vital healthcare services to the community, while providing value for its debt holders. To implement its decision, the Board engaged the services of KGI Capital, a contrarian financial advisory firm that specializes in recapitalizing underperforming businesses, including hospitals. In order to identify the most advantageous outcome for SOHS, KGI initiated a parallel path transaction process through which it sought proposals from a range of potential acquirers and financing sources, including strategic and financial buyers, healthcare real estate investors, junior secured lenders, and asset-based lenders. "We have found that the parallel path process provides a proven approach to optimum results for our hospital clients facing financial challenges," explained Joel Freedman, Managing Director of KGI Capital and lead financial advisor to SOH. "The results for Sherman Oaks certainly validate that approach." As a result of this transaction, SOH now has the necessary liquidity to make the much needed capital investments and better serve its community. Dr. Prem Reddy, the Chief Executive Officer of Prime, noted that "The medical staff at Sherman Oaks is clearly among the best in the marketplace. As we have with our other community hospitals, we intend to provide them with all of the tools necessary to deliver the unique range of high quality health care services the community has come to depend on."