A judge overseeing the bankruptcy of Hahnemann University Hospital rejected Joel Freedman’s plan to borrow $ 17.5 million to cover expenses for the buildings of the downtown Philadelphia hospital as well as to pay money owed lawyers, his own business, and others helping him try to sell the property.
Freedman’s companies that own the buildings will be cash-strapped early next year, he said in a case filed with bankruptcy court, which held a four-hour online hearing on Wednesday.
In her denial, U.S. Bankruptcy Judge Mary F. Walrath said there were unanswered questions about how much of the proposed 15-month loan would have been used specifically to maintain the Broad and Vine Streets properties, as opposed to payment of other expenses.
“It is clear that there is a big question as to how much of a loan is needed, and there is also a question as to the length of a loan that is needed to preserve and maximize the value of these properties.” , said Walrath.
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Freedman, a California businessman who bought Hahnemann and St. Christopher’s Hospital for Children in 2018 for $ 170 million, has disagreed with the bankrupt hospital’s estate since bankruptcy began in June 2019 .
When Freedman bought the hospitals, borrowing virtually all of the money, he separated the real estate from the hospital companies, holding the real estate in companies he controlled. Such splits are common because real estate alone is generally more valuable as collateral for a loan than a business.
The 2019 Hahnemann and St. Chris bankruptcy did not include real estate occupied by either hospital. Freedman sold the St. Chris business to a joint venture of Tower Health and Drexel University for $ 58 million and most of the real estate to Iron Stone Real Estate Partners for $ 65 million. The company rents the site to the hospital.
Although St. Chris’ operations and real estate have been sold, there is still a bankrupt legal entity that owned the hospital and owes people money.
But lawyers for the bankrupt shells at both hospitals sued Freedman, saying the proceeds from a possible sale of the Hahnemann buildings should be used to pay for bankruptcy claims that could reach $ 300 million, according to one estimate.
These attorneys, whose lawsuit against Freedman in Delaware bankruptcy court is sealed, opposed Freedman’s plan to borrow $ 17.5 million because that money would be paid back first after a sale, leaving less for the entities. bankrupt if they succeed in dragging Freedman’s real estate into bankruptcy. .
They also objected to the cost of the loan. No more than $ 6.5 million from the $ 17.5 million loan would have been available for the preservation of the buildings, Marc Minuti, by Saul Ewing Arnstein & Lehr LLP, Hahnemann’s lead bankruptcy lawyer, told Walrath on Wednesday.
READ MORE: Joel Freedman failed in his turnaround offer at Hahnemann University Hospital.
Most of the money would have been used to pay interest and other loan costs, a retirement reserve, as well as lawyers and other advisers’ fees. More than $ 3 million was reportedly paid to Freedman’s company, Paladin Healthcare, according to documents.
As alternative financing, the bankrupt company offered Freedman a six-month loan of $ 5.6 million. In a court case, Freedman rejected the offer as “draconian” because the term was too short and would allow creditors to foreclose on buildings when the loan expires.
Walrath advised Freedman and lawyers for bankrupt hospitals to compromise on the size and duration of a loan to protect Hahnemann’s properties until they are sold.
The monthly cost of maintaining buildings – including utilities, security, sprinkler systems, insurance and taxes – is $ 400,000 to $ 450,000, a representative from Freedman said.
“I don’t think you want my business judgment to rule,” she said.