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More importantly, board members: do not give the administration the power to negotiate terms and execute any documents on behalf of yourselves.
By now everyone knows that Hazel Hawkins Hospital is in deep financial trouble. Fortunately, we have a hospital board that we can both hold accountable and work with to save our hospital from closing its doors. Unfortunately, if they adopt the resolution that they are planning to at their next board meeting on Thursday, April 27 at 5:00 p.m. in the Great Room of the hospital, they are potentially going to make a huge mistake.
Resolution 2022-26 is to allow the CEO of the hospital to negotiate terms and execute a debt agreement in the form of a line of credit to borrow up to $10 million dollars from a commercial lender. At the very least, it puts a first priority lean on the accounts receivable of the hospital. Furthermore, the Resolution allows the CEO to negotiate the terms and execute the documents to put the line of credit in place.
As to the credit facility itself, my experience with them is that they are very expensive in terms of interest and fees. They also add an incredible administrative burden to the back office staff to meet the demands of the lender who wants to continuously secure their interest. Of course, we don’t know the details of this because as has become typical for the hospital, all the board and the public get is the vaguest information to deal with. So, I have to go with what they provided and my own experience. Maybe the unknown lender will not want to charge high interest rates, not place any UCC-1 filings, not want to have their own lock box for customers to remit, not charge fees for auditors and collateral verifiers to visit or not require Daily Cash reporting by the hospital. More on the burden later but for now I can say from experience that asset-based lines of credit come with all of that.
Today if the hospital were to close its doors, one way or another, we the community get what is left over. But by encumbering its most liquid asset, accounts receivable, on top of the lien the Department of Health Care Access and Information of the State of California has, we are transferring our ownership to the commercial lender. My experience includes asset-based lenders tightening the screws on the borrower the moment something that pertains to their credit facility experiences turbulence. The CEO of the hospital will not get away with publishing a hit piece on the employees of the lender when that happens or on the press that reports it.
More importantly, the board cannot simply give the CEO the power to negotiate and execute any contracts on their own. This is the same CEO and board that sprung the crisis on us, is in arrears to the IRS with employment taxes, bought a building with the crisis in the making, walked out on negotiations with Blue Cross/Anthem the first time around, and don’t put the crisis on their agenda. Asset-based lending is typically a complex transaction with a lot of terms, conditions, and costs. I do not believe the CEO has the knowledge or experience to negotiate any significant contract and the board is probably not in a position to offer any guidance either. No, no, no on Resolution 2022-26.
Concerned citizens can voice their thoughts on this on Thurs., April 27 at 5 p.m. in the Great Room of the hospital.