Dr. Kali Chaudhuri’s KPC Group has once again emerged as the most likely buyer of troubled Victor Valley Community Hospital.
Riverside-based KPC appears to have supplanted both Ontario-based Prime Healthcare Services, owned by Dr. Prem Reddy, and St. Joseph Health System, which operates St. Mary Hospital in Victorville, as Victor Valley Community Hospital’s main suitor.
A federal bankruptcy judge has approved KPC Group’s $33.8 million offer for the takeover of the hospital. This is the second offer KPC has made in two years.
In 2010, Victor Valley Community Hospital, staggering under more than $20 million in debt, filed for Chapter 11 bankruptcy protection and the 101-bed hospital was put on the auction block. KPC Global Care, one of KPC Group’s entities, outbid Prime Healthcare, tendering a $37 million offer in November 2010 that was $2 million above Reddy’s offer. But after KPC obtained the state attorney general’s approval for the takeover, it failed to finalize the acquisition because it was not able to line up financing and that deal fell apart in May 2011. Subsequently, a federal bankruptcy court judge approved an agreement allowing the non-profit arm of Reddy’s for-profit venture, known as Prime Healthcare Service Foundation, to purchase the hospital for $35 million.
KPC now needs the approval of the state Attorney General’s Office to complete the deal. Last year, after Reddy’s $35 million offer was accepted by the bankruptcy court, the state attorney general’s office on September 20 intervened, blocking Reddy’s plan. A major consideration was that Victor Valley Community was founded and set up as a non-profit institution. The attorney general’s office had moved to ensure that the High Desert preserve at least one non-profit hospital in an area with a multiplicity of for-profit medical centers, including one already owned by Reddy, Desert Valley Hospital.
“We have concluded that this proposed sale is not in the public interest and will likely create a significant effect on the availability or accessibility of health care services to the affected community,” acting chief deputy attorney general Michael Troncoso said at that time.
Nevertheless, with Victor Valley Community teetering on the brink of financial collapse, Reddy on October 14, 2011 proffered capital in the form of loans and a consulting arrangement to prevent the hospital from having to close its doors. That assistance was codified in the form of what was called a “post-petition revolving credit and security agreement between Victor Valley Community Hospital as borrower and Prime Healthcare Management, Inc. as lender.”
The California Attorney General’s office redoubled its effort to prevent that agreement from being actuated and filed on October 28 for a temporary restraining order to prevent the hospital from entering into a financing plan and consulting arrangement with Prime Healthcare. On October 31, Superior Court Judge Steve Malone tentatively denied the attorney general’s request for the restraining order. In November, Malone again denied the state attorney general office’s effort to block the $6 million financing and consulting agreement. Prime Healthcare never acquired Victor Valley Community Hospital, however.
The scenario was made more complicated when, also in November, KPC Global reasserted its interest in acquiring Victor Valley Community, filing legal and financial documents to create an entity known as Victor Valley Hospital Acquisition Inc., and indicating it stood ready to put up $31.1 million toward that end. Victor Valley Community Hospital officials were somewhat resistant to the KPC Global offer at that point, and were seemingly more favorably disposed to working with Prime Healthcare.
In January, St. Joseph/St. Mary made a $35 million bid on Victor Valley Community Hospital but has not followed through with an arrangement on financing.
At present, KPC has commitments to cover the full $33.8 million purchase price of Victor Valley Community.