The independent newspaper of the University of Iowa community since 1868

The Daily Iowan

The independent newspaper of the University of Iowa community since 1868

The Daily Iowan

The independent newspaper of the University of Iowa community since 1868

The Daily Iowan

Bondholder Preston Hollow beats UI Hospitals and Clinics in auction for Mercy IC assets

The private equity company will acquire the 150-year-old hospital and begin operations in November in partnership with the California-based American Health Systems.
Matt Sindt
Mercy Hospital is seen in Iowa City on Wednesday, March 12, 2023.

Bondholder Preston Hollow Community Capital topped the University of Iowa’s $20 million bid to acquire Mercy Iowa City and its assets in a prolonged auction.

The decision was announced late Tuesday evening after several days of talks between Mercy Iowa City, Preston Hollow, and a committee of Mercy Iowa City’s unsecured creditors. American Health Systems is expected to take financial and operational control of Mercy by mid-November following approval by the bankruptcy court.

According to Court Documents, Preston Hollow, a private equity company based in Dallas, Texas, partnered with nationwide for-profit American Health Systems, based in Glendale, California, to submit the successful bid.

The auction started on Oct. 4 after Preston Hollow submitted a valid bid of at least $20.9 million to purchase the 150-year-old hospital.

RELATED: Mercy Iowa City assets to go to auction after competing bid made

Preston Hollow, wrote in a news release Wednesday, that Mercy Iowa City will remain a community hospital. Jim Thompson, CEO and Chairman of Preston Hollow Community Capital, said Mercy Iowa City “will continue to deliver high-quality, affordable health care” to the Iowa City Community after the acquisition.

Thompson said Preston Hollow will provide significant capital investments to stabilize operations at Mercy Iowa City as it starts the transition.

Mercy Iowa City’s Chief Restructuring Officer Mark E. Toney said the transition planning has already begun.

“We are also appreciative of the work and commitment shown by the University of Iowa as the stalking horse in the auction process,” Toney said. “The university’s commitment was driven by preserving health care in Iowa City, which we believe this process has done.”

Operations of the community hospital will be managed by American Health Systems with financial support provided by Preston Hollow’s investors. Community leaders from Iowa and Johnson County will sit on a board to oversee ownership for Mercy Iowa City, which will operate as a non-profit.

“We know Preston Hollow as a bondholder, and we have learned more about American Healthcare Systems,” Clancy said in the news release. “[American Health Systems] is experienced at operating and rehabilitating hospitals across the country.”

The purchase of the hospital comes more than two months after the community hospital announced they would file for bankruptcy following public pressure from the hospital’s bondholder, Preston Hollow Community Capital, and Corporate Trustee, Computershare Corporate Trust, N.A., in early August.

The two private equity companies alleged that Mercy Iowa City was operating at massive operational losses, which they said was a “cash burn,” according to court documents.

In the public legal battle, the two companies asked federal courts to enter the hospital into a receivership to prevent further financial losses, further negating their ability to pay their current debts.

Mercy Iowa City filed for Chapter 11 bankruptcy on Aug. 7 after increasing pressures from trustees.

RELATED: UI requests $20 million acquisition of Mercy Iowa City

The UI Hospital and Clinics partnered with Mercy Iowa City to enter a “stalking horse bid” in early August that set the floor for starting bids at $20.9 million after mandatory “break-up fees” and minimum bid increments are met under the bidding procedures laid out in the bankruptcy case.

With UIHC losing the bid to the trustees, they will receive a payout of $800,000, according to bidding procedures laid out in the stalking horse agreement.

UIHC attempts Mercy acquisition in 2021, 2023 

UIHC’s current bid of $20 million is almost 25 times less than its bid in 2021 in hopes of acquiring Mercy Iowa City’s assets. According to a Cedar Rapids Gazette report, UIHC bid $605 million in August 2021 to acquire the then Mercy One affiliate. Mercy Iowa City has since disaffiliated with the Mercy One network and is its own non-profit.

The bid came as Mercy ventured to leave the Mercy One Network that it had been affiliated with since 2017.

In an email to UI employees, UI President Barbara Wilson and Denise Jamieson, vice president for Medical Affairs and Dean of the College of Medicine, said they were disappointed that the UI’s bid was not selected.

“Nevertheless, we are heartened that the selected bidder, the bond holder, has committed to keeping Mercy Iowa City as a hospital,” Wilson and Jamieson said.

Now, UIHC continues its construction of a community-based hospital in North Liberty, which it recently reported is more than halfway complete. 

The hospital is aimed at alleviating the more than 70,000 emergency room visits UIHC gets every year to alleviate the strain and provide quicker access to care in the growing cities of North Liberty and Tiffin.

More to Discover
About the Contributor
Liam Halawith, Politics Editor
Liam Halawith is a third-year student at the University of Iowa studying Journalism and Mass Communication and minoring in Public Policy. Before his role as Politics Editor Liam was a politics reporter for the DI. Outside of the DI Liam has interned at the Cedar Rapids Gazette and the Southeast Iowa Union. This is his second year working for the DI.