Penobscot Valley Hospital in Lincoln will exit Chapter 11 bankruptcy in the next couple weeks after a federal bankruptcy judge approved a proposal to reduce its long-term debt, the hospital said Friday.
In a written statement, the hospital said the proposal would allow it to “preserve” its business operations and jobs. CEO Crystal Landry has previously said the hospital does not plan to reduce services as part of its restructuring.
In court filings, Landry said that the hospital would retain all of its assets as it restructured its debts and that it is “stronger, more prepared, and on a better financial footing than the day it filed its bankruptcy petition.”
Penobscot Valley Hospital first sought bankruptcy protection two years ago, after accruing up to $10 million in debts to various creditors including the U.S. Department of Agriculture, the Maine Department of Health and Human Services, Machias Savings Bank and the federal Centers for Medicare and Medicaid Services.
Under the hospital’s restructuring plan, Maine DHHS and the Maine Revenue Service agreed to “significantly reduce” the $2.9 million Penobscot Valley Hospital owed to the state at the time it filed for bankruptcy, Landry wrote in a court filing.
The plan will also restructure the hospital’s debts to the U.S. Department of Agriculture and Machias Savings Bank so that it can more easily repay them.
U.S. Bankruptcy Judge Michael Fagone approved the restructuring plan on Friday.
Before filing for bankruptcy in early 2019, the 25-bed facility had seen its patient numbers drop in recent years, which the hospital described as among the “ripple effects” of the 2015 closure of Lincoln’s largest employer, the Lincoln Paper and Tissue mill.
This past spring, the hospital faced serious cash shortfalls, when the coronavirus pandemic forced all hospitals to delay or cancel many elective procedures.
At the time, it and another bankrupt Maine hospital, Calais Regional Hospital, warned they might have to close by the summer without outside funding. Their Chapter 11 status became an impediment to them receiving relief funding through the federal Paycheck Protection Program because of rules barring bankrupt entities from the program.
Both hospitals unsuccessfully sued the federal government to change those rules, but they eventually received separate relief funds that secured their bottom lines and helped them get through the summer.
However, it may be too late for the hospital to reapply for funding under the Paycheck Protection Program, which has not been renewed after applications closed for the last round of funding in August.