Case Studies

The Borrower

This privately-held company was formed to purchase the assets of a more than 100-year-old acute care hospital outside the city limits of Chicago. The hospital provides general acute care services to an underserved, urban population.

The Industry

The healthcare industry comprises nearly 20% of our nation’s gross domestic product; spending at the nearly 5,000 hospitals in the U.S. topped $600 billion in FY 2006. Demand for general acute care services remains steady and healthcare expenditures continue to grow at a rapid pace.

The Challenge

A large, faith-based healthcare organization decided that it no longer desired to have a presence in the Chicago Metropolitan area. Institutional private equity firms weren’t comfortable with the current management team, nor with the prospect of turning around this urban, acute care hospital. The parent company was ready to close the doors when a team of turnaround management professionals, excited about the prospect, approached them with a proposal to acquire the hospital and take over operations.

This new management team was convinced a turnaround was possible, but in order to make it happen, they needed to 1) secure an equity partner and 2) secure equipment and working capital financing. First, they secured a majority of the equity from a group of experienced healthcare investors with whom they’d previously worked. And, the new management team invested alongside of them, forming a partnership that took over hospital operations. However, they still required equipment and working capital to cover day-to-day operations. They needed a financial services partner with extensive experience in healthcare financing—one familiar with the healthcare industry who could appreciate the potential of the management team and their business plan—and could deliver within a tight timeframe in order to continue to keep the hospital open.

The Solution

As the investor group acquired the hospital and began to stabilize its operations, the CapitalSource Healthcare Credit Group, with over 100 years of healthcare financing experience, performed an in-depth analysis of the business and provided the firm with a $20.2 million senior credit facility, comprised of a $15.0 million revolver and a $5.2 million equipment term loan. Along with the investor equity, this fresh capital structure—delivered within a tight timeframe—provided the new owners and management team with the liquidity they needed to keep the hospital open and focused on operations without putting an undue burden on its balance sheet.

CASE STUDY WRITTEN: 11/08


Header photo credit: ( c ) 2008, The Washington Post. Photograph by Nikki Kahn. Reprinted with Permission.