According to an article by Harold Brubaker in The Philadelphia Inquirer, Crozer Health’s landlord, Medical Properties Trust Inc. (MPT), plans to transform its lease agreement for Crozer’s hospital buildings into a mortgage.
Philadelphia Inquirer May 2, 2023: Crozer’s landlord uses complicated financial maneuvers to mitigate a troubled investment
“It could conceivably give MPT some protection in the event of a Crozer bankruptcy, because MPT would likely have higher seniority to be paid back as a lender than as a landlord if Crozer goes under,” said Eileen O’Grady, PESP Healthcare Director.
In a deal worth $1.55 billion, the real estate investment firm MPT, based in Alabama, acquired Crozer Health’s real estate from Prospect Medical Holdings, the parent company of Crozer Health.
Prospect has faced difficulties in fulfilling its rental obligations to MPT for the utilization of Crozer’s facilities, following the terms of the deal.
Bankruptcy rules also treat a mortgage differently than a lease. During bankruptcy, a mortgage can be renegotiated for a lower interest rate or a lower principal amount, which is not true of a lease. A real estate lease can only be accepted or rejected in bankruptcy, hence Eileen’s analysis of MPT creating protection against a possible Crozer bankruptcy.
Read more of Eileen O’Grady’s research on Prospect Medical here.