Financial Hurdle Stands Between Samaritan and Proposed Merger
Samaritan says finances have improved, seeks to end default notice
Hearing that a hospital has received a “default notice” sounds like the beginning of a financial collapse. Many nonprofit hospitals, including Samaritan Health Services, borrow money by issuing bonds to investors. Those bond agreements include financial requirements that Samaritan must maintain.
If the hospital falls below the agreed-upon financial benchmarks, bondholders can issue a notice of default, even if the hospital continues to make all of its debt payments on time.
This is where Samaritan Health Services finds itself today. They are now asking bondholders to withdraw the default notice.
Hospital leaders say the organization's finances have improved enough that the bondholders' concerns have been addressed. Samaritan President and CEO Marty Cahill said, "Removal of the default notice removes meaningful impediments to closing the affiliation with MultiCare."
Last year, Samaritan reported that it had fallen below the reserve levels required under some of its bond agreements. Those bond thresholds are there to give investors confidence that an organization remains financially healthy.
Falling below those benchmarks does not mean a hospital cannot meet its financial obligations. But it does signal that certain financial promises made to investors were not met.
According to Samaritan executives, those financial conditions have improved over the past year. During a recent meeting with bondholders, leaders said the health system has rebuilt its financial reserves above the levels that originally triggered the notice.
The affiliation still requires regulatory approvals and several remaining financial conditions before it can close. Resolving the bond default notice is one of those remaining milestones.
Samaritan has always been a hot topic here. It's important to remember that mergers like these can bring benefits to our community, but they can also have drawbacks… more on those later.
When the affiliation was first announced, Cahill described it as "an important step in securing the future of nonprofit health care in our region," adding that Samaritan's goal is to remain a "community-based, mission-driven organization."
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