CARITAS GOING FOR-PROFIT /
Caritas agrees to $830 million deal with Cerberus
Caritas Christi in Boston becomes second not-for-profit in one week to agree to be bought by for-profit suitor.
Caritas Christi Health Care has announced the second deal in a week that would send a capitalstarved, not-for-profit health system into the arms of a for-profit suitor. The six-hospital Catholic health system, owned by the Archdiocese of Boston, said on March 25 it agreed to an $830 million offer from the New York private equity firm Cerberus Capital Management. The deal will convert the system, which has struggled financially in recent years, to a for-profit company, but the partners said in a written statement the Boston-based system would continue to follow Roman Catholic directives for medical care.
And six days earlier, Vanguard Health System, a Nashville-based, for-profit hospital chain, said it signed a letter of intent to acquire not-for-profit, six-hospital Detroit Medical Center, for $417 million plus an additional $850 million capital in investments over five years (March 22, p. 4). Ten-hospital Vanguard’s deal hinges on state, county and city approval of a special economic zone.
The deals may be among many in 2010 thanks to the recession, health reform and limited access to capital markets among weaker borrowers (Jan. 18, p. 20).
Caritas Christi will also see a significant infusion of capital under its deal with Cerberus. Under the agreement, Cerberus will invest $400 million in major construction projects at each of the system’s hospitals and repay its outstanding debt, which totaled at least $272.7 million, according to a January report by Moody’s Investors Service.
Caritas did previously seek a Catholic buyer, but its tentative agreement with St. Louis-based Ascension Health, the nation’s largest not-for-profit health system, fell apart in 2007 (July 2/9, 2007, p. 8).
Job cuts and higher rates for managed-care plans helped Caritas Christi close its books last September in the black after losing roughly $20 million the prior year, according to Moody’s and financial statements. Including the $23.7 million sale of its medical laboratory subsidiary, the system finished the year that ended in September with operating income of $54.3 million on $1.32 billion in revenue last year.
Cerberus also agreed to invest an unspecified amount to fund operations and agreed to take on Caritas Christi’s pension liabilities. The firm also agreed to maintain Caritas’ staffing levels, its residency and teaching programs, and its management team, including President and CEO Ralph de la Torre.
The deal must be approved by the Massachusetts Public Health Department, the state attorney general and the Archbishop of Boston. Standard & Poor’s says the deal is expected to close in four to eight months.
Caritas Christi will continue to follow church policies for free and discounted care and other subsidized services known as community benefits, pastoral care and labor relations, according to the statement.