Question:

Our Health System has agreed to add an independent community hospital to the System.  If the Health System Parent Corporation (“HSPC”) becomes the new parent corporation for that hospital, would the HSPC assume the hospital’s liabilities and tax-exempt bond obligations?  Would there be a different answer if the HSPC and the hospital merged?

Answer:

The Definitive Agreement between the HSPC and the hospital will describe whether the new parent corporation has taken on the hospital’s liabilities and bond obligations.  Simply becoming the new parent corporation in and of itself does not make the parent company liable for the hospital’s liabilities and debts.  That obligation has to be taken on in writing by the parent corporation – in the Definitive Agreement – and with at least one other signed document by which the HSPC agrees to be liable for the hospital’s tax-exempt bond obligations.

A merger of these two entities, however, produces a different story.  The hospital would merge with the HSPC, with the HSPC being the surviving corporation.  With that merger, the HSPC has taken on all of the liabilities, debts and obligations of the hospital which has now merged into it.  Can the HSPC do that merger?  One answer:  not if the HSPC’s own bond documents prohibit the HSPC from assuming the debt of the other hospital’s bond obligations.

To learn more about the ins and outs of hospital mergers and affiliations and the choices they raise, please join us for the HortySpringer workshop “Mergers, Acquisitions, Affiliations or Independence” on May 1-2, 2014 (afternoon session on May 1 and morning session on May 2) at the JW Marriott in Atlanta.