CONYERS - Signature Hospital Corp. has withdrawn its intent to purchase Rockdale Medical Center.
Signature sent on Tuesday its official notification to members of the Rockdale Hospital Authority and the Rockdale Medical Center Board of Directors that it had terminated any further negotiations for the purchase of RMC. According to a press statement released Tuesday, Signature said its decision was "based on the continued tightening credit markets and its inability to secure financing for the transaction on terms which would assure the future success of the hospital."
Ethel Boyle, chairwoman for the Rockdale Hospital Authority, said Tuesday the Hospital Authority is disappointed in the decision, but the hospital's board of directors had already begun considering alternatives.
"We were very pleased with Signature's asset purchase agreement and we were very satisfied with Signature, but the market made it impossible to work," Boyle said. "We will go ahead and pursue other possibilities."
Signature's announcement came almost nine months to the day after the two entities entered into a non-binding asset purchase agreement to sell the public hospital for $87.7 million to the private corporation.
Hospital officials announced in the summer that the hospital would be unable to meet its debt ratio covenants, which required the hospital to have enough cash on hand at any given moment to cover 1.2 times its bond debt of $85 million, or $102 million.
As a result, the hospital authority said the best course of action would be to find a third party to purchase the hospital. On Aug. 29, the hospital authority announced it had entered into the purchase agreement with Houston,-based Signature.
The process has taken several stops and turns along the way. According to state law, the sale of a public hospital to a private entity must meet with the approval of the Georgia attorney general to ensure the sale is in the public's best interest.
As a part of the process, a public hearing was held in November and the Attorney General's office had 30 days to issue its decision. Several members of the public expressed concern about the proposal to sell the 54-year-old public hospital to a private entity. A group of citizens hired an attorney to look into the details of the sales agreement.
On Dec. 14, the day the Attorney General's Office was to issue its findings, Signature sent a letter to the Attorney General's Office stating its intent to amend the terms of the purchase agreement. Signature said its primary lender, Merrill Lynch, altered the terms of its loan to Signature due to uncertainty in the financial markets. Under the new terms, Signature would pay the hospital authority $62.7 million in cash and $25 million in the form of a promissory, or subordinated note. Signature also replaced Merrill Lynch with CapitalSource as its primary lender in the deal.
As a result, a second public hearing with the Attorney General's Office was held in February.
But in March, after the collapse of Bear Stearns, CapitalSource said instability in the market forced it to back out of the agreement to back Signature's purchase.
In the meantime, officials with Signature and the hospital authority continued to pursue the sales agreement. On April 1, Michael Potter came on board as chief executive officer for RMC as a loaned executive by Signature.
Boyle said Tuesday that Potter will remain as CEO of the hospital even though Signature is no longer a party.
"He has agreed to stay on as a CEO, which we are thrilled about, pending satisfactory contract negotiations," Boyle said. "And that is wonderful. As far as the operations of the hospital and service to the community, that is going to be unchanged. We have probably the strongest executive team here that we have had in a long time."
Even though the process of finding another buyer for the hospital must begin anew, Boyle said much of the groundwork has already been laid, so things should move more quickly the next time.
"When we had some delays in the past, we had prepared a plan B, and we're already down the road with that," she said. "It will be a similar process, but we're not going back to square one."
Part of the purchase agreement with Signature included the deposit of $1 million in earnest money that will be retained by the Hospital Authority and used to defray costs incurred throughout the past nine months.
Boyle said the authority is in talks with a number of organizations that "have continued to show interest in the hospital throughout the process." She would not provide specific details, but said the authority is interested in finding the "best fit for Rockdale County."
"We felt like Signature was an excellent fit for the hospital, but it didn't work out," Boyle said. "All this doesn't diminish the fact that this is an excellent hospital and we have an excellent staff. This is an institution and asset to our community that everyone can be proud of and support."
Boyle said that Rockdale Medical Center is in the position to continue to meet its financial obligations, including overhead expenses and a $2.49 million bond payment due Oct. 1, but would find difficulty moving forward upgrading equipment or adding to its inventory.
"In my estimation, the need (for a purchaser) still exists," she said.
Recent financial figures from hospital administrators indicate the cash flow and revenue continue to improve. According to an audit report in March, RMC operated at a $7 million loss in 2007 - a significant improvement over the $13 million deficit reported in 2005.
RMC's Chief Financial Officer Sandy Albrecht reported the hospital recorded the highest number of collections in January in RMC's history. Further, when the Federal Reserve cut interest rates to banks, it resulted in significant savings in interest on the hospital debt.