State AG OKs Chaudhuri’s Purchase Of Victorville Hospital

(September 7)  VICTORVILLE—Dr.  Kali Chaudhuri and his Riverside-based company drew closer to a final purchase of  Victor Valley Community Hospital following the California Attorney General’s approval of the sale on August 31.
Riverside-based KPC Group, which in 2011 tendered a $37 million offer for Victor Valley Community that was accepted but fell through when Chaudhuri and his partners were unable to line up the financing, this time has agreed to purchase the now bankrupt Victorville hospital for $33.8 million. Chaudhuri and KPC have until September 30 to close the deal.
Chaudhuri and KPC have committed to making $25 million in facility, equipment and service upgrades and improvements, as basic capital investment at the institution has been neglected for some time.
Victor Valley Community, which was founded as and remains a non-profit institution, has been in eclipse for nearly a decade. In September 2010, staggering under more than $20 million in debt, the 101-bed hospital filed for Chapter 11 bankruptcy protection and was put on the auction block. That attracted a $37 million offer from KPC Global Care, one of KPC Group’s entities, and a $3 million offer from Dr. Prem Reddy and his company, Prime Healthcare.  But after KPC failed to finalize the acquisition and bowed out in May 2011, 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. But after Reddy’s  offer was accepted by the bankruptcy court, the state attorney general’s office on September 20, 2011 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.
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.” That agreement took the form of a $6 million financing and consulting arrangement. The California Attorney General’s office redoubled its effort to prevent that agreement from being actuated, though Victor Valley Community was sustained in the short term by an infusion of Reddy’s funding. 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 did not follow through with an arrangement on financing.
At present, KPC has commitments to cover the full $33.8 million purchase price of Victor Valley Community.  In providing her office’s approval, California Attorney General Kamala Harris required that KPC must hold $3 million in an interest-bearing account for emergency operating or capital needs for the next five years unless VVCH begins operating on a positive cash flow basis before then.
A portion of the purchase price will go toward recompensing Reddy and Prime Healthcare for the capital provided to keep the hospital running over the last year.

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