Calais Regional Hospital is now seeking to temporarily exit bankruptcy so that it might qualify for a federal coronavirus relief program from which it has so far been excluded because it’s in the midst of bankruptcy proceedings.
Like another Maine hospital that’s in Chapter 11 bankruptcy — Penobscot Valley Hospital in Lincoln — the Calais facility previously applied for at least $1.5 million in forgivable loans through the Paycheck Protection Program, which was designed to help businesses keep their staff employed during the pandemic. But both hospitals were denied because of rules that bar bankrupt businesses from participating.
After that decision, the Lincoln and Calais hospitals both filed lawsuits seeking to apply for PPP funds, arguing in part that hospitals have a unique role to play during the pandemic and that they could have to close their doors because of steep revenue shortfalls related to the virus.
But U.S. Bankruptcy Judge Michael Fagone has dismissed their suits.
Now, Calais Regional Hospital is trying a different tack. While it has now received at least $3.7 million from other federal relief programs, it asked a judge late last week to dismiss its Chapter 11 bankruptcy case so that it can seek at least $1.8 million in additional PPP funding.
In a July 23 court filing, the hospital’s attorney, Andrew Helman of Portland, said that First National Bank has agreed to extend a forgivable PPP loan if the hospital can leave bankruptcy. Once it secures the loan, the hospital would then re-petition for Chapter 11 bankruptcy to help restructure its millions in debt.
Under the PPP program, the federal government guarantees loans that are made by private lenders. Those loans can then turn into grants if the borrower spends at least three-quarters of the funds on payroll and wages, among other conditions.
“The Debtor believes that dismissal in order to obtain PPP would be in the best interest of the Debtor, its estate, and its creditors and that no party would be prejudiced. Dismissal for this purpose will support the Debtor’s efforts to continue its business operations and reorganization,” Helman said.
So far, none of the hospital’s creditors have responded to the filing and no hearings have been set for the court to consider it.
Helman noted that Congress has extended the deadline to apply for PPP funding from June 30 to Aug. 8. He also said that the hospital’s patient revenue was down 37, 31 and 25 percent from normal amounts in April, May and June, respectively, after following federal advice to cancel or delay non-urgent procedures during the early months of the pandemic.
Last spring, it warned that its cash balance could fall to near zero by early this summer, which would have forced it to close, but that was before the hospital received at least $3.7 million in separate relief funds. On its current trajectory, Calais Regional Hospital now projects that its cash balance could fall from $4.5 million in late June to $2.9 million by the start of October, according to recent court filings.
Penobscot Valley Hospital does not currently plan to leave Chapter 11 bankruptcy, according to CEO Crystal Landry.
Both hospitals have filed for Chapter 11 bankruptcy in the last year-and-a-half to help restructure millions in debts, although those debts were greater at Calais Regional Hospital.
Two members of Maine’s congressional delegation, Rep. Jared Golden and Sen. Susan Collins, have also sponsored legislation that would allow critical access hospitals in bankruptcy proceedings to receive PPP loans.