By Hilary Russ
NEW YORK | Thu May 30, 2013 5:59pm EDT
NEW YORK May 30 (Reuters) - Two non-profit healthcare providers have filed for Chapter 11 bankruptcy since last week, putting in jeopardy more than $50 million of U.S. municipal bonds that were issued on their behalf.
The bond trustee for Pennsylvania-based KidsPeace, which provides children's mental health services in 10 states and the District of Columbia, notified bondholders on Wednesday that KidsPeace had filed Chapter 11 bankruptcy on May 21.
At stake in the case are about $51 million of outstanding revenue bonds issued in 1998 and 1999 by the Lehigh County General Purpose Authority.
"Our hope is that there will be a restructuring through a confirmed plan of reorganization," said Rick Frimmer of Schiff Hardin in Chicago, the lawyer for bond trustee UMB Bank NA.
Also on Wednesday, the Sound Shore Medical Center, a non-profit hospital in New York's Westchester county, filed for Chapter 11 bankruptcy as part of an asset sale to the Montefiore Health System.
A court filing shows just over $3 million in unsecured bonds issued through the Dormitory Authority of the State of New York. An attorney for Sound Shore said the bonds may be compromised.
The cases are another sign of struggle in an industry that is still feeling the pangs of transformation.
Healthcare revenue in general is under intense pressure from reduced reimbursement rates from both government and commercial insurers, according to George Huang, senior analyst at Wells Fargo Securities.
Healthcare providers have also been squeezed by increased costs as they prepare for changes mandated by President Barack Obama's Affordable Care Act. Many hospitals are redesigning the way they deliver care and considering moves away from the traditional fee-for-service model.
Non-profits face additional stress, Huang said, because they must provide healthcare to under-insured and uninsured patients, unlike private hospitals.
Those factors, along with the recession, have already forced many providers to cut costs, leaving some with little additional room to adjust.
"It's getting to the next level of cost reduction that's more difficult to do," Huang said. "They're going through this transformation right now and it's going to be a bit rocky as they navigate through the next few years."
As health systems finance more reform-driven capital expenditures in 2013, Wells Fargo expects to see 10 percent more hospital bond deals and 14 percent more volume for a total of $33.3 billion.
Other recent non-profit healthcare providers in trouble include Pittsburgh-based West Penn Allegheny Health System, which avoided bankruptcy but still restructured its debt in a $604.2 million bondholder buyout.
Health insurer Highmark Inc. bought about 85 percent of West Penn's outstanding 2007 bonds at 87.5 cents on the dollar, as part of a nearly $1.1 billion deal to save the troubled Pennsylvania health system from insolvency.
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