Quorum Health Topples Mudrick, Clearing Path to Bankruptcy Exit

(Bloomberg) -- Quorum Health Corp. won approval of its plan to exit bankruptcy Monday, prevailing in a prolonged fight with its biggest shareholder, Mudrick Capital Management.

U.S. Bankruptcy Judge Karen Owens said in a hearing Monday she would approve the rural hospital chain’s plan to hand over ownership of the company to creditors including GoldenTree Asset Management LP and Davidson Kempner Capital Management LLC while slashing some of its $1.2 billion debt.

Mudrick -- which owns about 15% of Quorum’s shares -- opposed the plan, arguing it was based on a shoddy valuation that unfairly calls for zero recovery to current shareholders. Central to Mudrick’s challenge was the idea that Quorum’s leaders and lawyers obscured and underplayed the amount of money it received under the CARES Act. Quorum denied Mudrick’s allegations during the week-long trial.

“When it comes to valuation issues, reasonable minds can and do often disagree,” Owens said in the hearing Monday, adding Quorum’s plan is “the best and only actionable proposal available” to get the hospital chain out of bankruptcy.

Although Owens said she’d approve the plan, the judge chided Quorum for a “serious lack of judgment” in its decision not to disclose the receipt of some $70 million of federal aid funds prior to a key hearing earlier in the case. Owens acknowledged the rules surrounding the funds are uncertain and said the lack of disclosure didn’t warrant blocking its bankruptcy plan.

The trial took place over a series of lengthy Zoom video calls due to coronavirus restrictions, adding Quorum to the growing list of cases in which major court fights are being resolved over the internet. Financing issues in cases involving J.C. Penney and Neiman Marcus Group have been handled remotely as well.

Mudrick was active in the case from the outset. The distressed-company specialist succeeded in delaying the confirmation trial by arguing that Quorum withheld information that could’ve been used to fight the approval of its bankruptcy financing. Quorum’s lawyers denied hiding or manipulating any facts, but Owens delayed the hearing, citing a “potential lack of candor” from the company.

The case is Quorum Health Corporation, docket 20-10766, U.S. Bankruptcy Court for the District of Delaware.

©2020 Bloomberg L.P.