Sturgis Hospital still working toward possible sale

STURGIS -  Sturgis Hospital officials are still working to find a buyer, while city officials approved a plan for how to move forward with its financial connection to the facility.

The Sturgis City Commission on Wednesday heard an update from Sturgis Hospital Board President Jeremy Gump on the hospital's status as it works to find an entity willing to purchase the struggling hospital, while also working toward a rural emergency hospital format to save money.

Facing critical financial difficulties and the reality of closure, the hospital in recent weeks has received letters of interest from several potential buyers. The REH paperwork was delayed at the state level, and while the inpatient bed part of the hospital ceased in May to save funds and to edge toward an REH format, the emergency room and outpatient services continue to be available as planned.

The Sturgis City Commission reached an agreement with Asker Corp. regarding future payments to the city for the physical hospital building.

Gump said the hospital's current management and board both remain in place.

"Sturgis Hospital leadership and the board are in discussions with Asker Corp. and other parties regarding acquisition of Sturgis Hospital," Gump said after the meeting to summarize Wednesday's presentation and subsequent commission action.

Because Sturgis Hospital leases the building from the city, Gump said, "it is necessary for any potential acquirer to come to (an) agreement with the city on current and future lease payments."

To date, Gump said, "we have not received a formal offer from Asker Corp. to acquire Sturgis Hospital.  We anticipate that a formal offer will be received in the coming days."

The commission voted to authorize City Manager Andrew Kuk and the city's legal counsel to develop an agreement with Sturgis Hospital Inc. and Asker Corp. on reducing the payments and amounts owed to the city under the current sublease agreement with the hospital, to not exceed $3 million, with payment terms extending no more than 60 months, and with a lien on assets to secure payment as presented. Further conditions placed on the motion would be the arrangement would be subject to a full review of financial information and final approval of the commission. The payment terms proposed were $1.5 million put down up front and the remainder spread out over the five-year term.

The city commission also voted unanimously to have Kuk sign the engagement letter with Andrew Rogalski of Warner Norcross for representation of City of Sturgis in conjunction with the proposed sale of Sturgis Hospital.

Sturgis Hospital over the years

In 2004, the City of Sturgis agreed to a lease with the newly-created City of Sturgis Building Authority, for improvements to the hospital and issuing bonds to pay for those improvements. The rental payments payable under the lease were security for the bonds issued by the Sturgis Building Authority to finance improvements to Sturgis Hospital, at that time owned by the city itself.

In 2009, as part of the sale of the hospital - including property and assets - by the city to Sturgis Hospital Inc., the city and SHI entered into a sublease agreement. Under the agreement, SHI would pay rental installments to the city in the amount of the bond payments, which the city would then transfer to the Sturgis Building Authority to pay the bonds. The sublease was secured by a mortgage and security agreement, which pledged select hospital property and equipment to the city if SHI were to default on the sublease. The sublease was amended in 2014 as part of bond refinancing. The outstanding debt service owed on the bonds is currently $8.56 million. The bond issuance requires the hospital operates as a nonprofit facility.

Looking for an 11th-hour 'miracle'

Last year, Sturgis Hospital officials reported a revenue-saving action plan was needed or else the hospital could close. The hospital applied for, and received, state funding, as well as a short-term loan from the city, to carry it from last summer to Dec. 31, as it planned to apply for a rural emergency hospital status through legislation that went into effect Jan. 1. The REH model's most-visible format shift would be the ending of inpatient bed services.

In May, it was reported the hospital was still awaiting paperwork approval at the state level.

Recently, Sturgis Hospital Inc. reported they were again in critical financial difficulty and they would not be in a position to pay the next bond payment, due in September. Last month, Gump said that, with the delay in REH paperwork and a sizable invoice tendered to the hospital, the facility faced closure by June 30. However, an inflow of income allowed the hospital to remain open, although financial difficulties continued and made finding a buyer a top priority.

Hospital officials said they were discussing multiple options for the sale of the hospital with interested third parties. Asker Corp. is looking to buy the hospital as a for-profit facility.

As part of the discussions, Sturgis Hospital Inc. has involved the city. The city has been in discussion with these third parties regarding the sublease agreement and how it may be assigned or restructured as part of a sale or bankruptcy agreement with the hospital. Ultimately, Sturgis Hospital Inc. has the final say in negotiating the sale of the hospital, with discussion of the sublease one portion of the negotiations put $1.5 million down and then $1.5 million over the next five years.

Early discussions with another potential buyer resulted in no negotiations, nor terms finalized.

Representatives of Blue Rose Capital Advisors provided details on scenarios of different deals for hospital. Those included the Asker deal, a hypothetical nonprofit purchase of the hospital, and the option that no purchase takes place and the city has to offload hospital assets. All scenarios considered the implications for potential bond payments and overall costs to the city itself, city officials said.

The city commission's action Wednesday is not binding, Kuk said, and "only one part of a potential sale of the hospital" and willingness on the city's part to move forward with a process resulting in the hospital's sale. The action taken Wednesday also does not limit the city from considering other potential buyers should offers be made.

Commissioner Aaron Miller was absent from Wednesday's meeting.

This article originally appeared on Sturgis Journal: Sturgis Hospital still working toward possible sale