A New York investor specializing in distressed assets has called on the board of Quorum Health Corp. to adhere to its fiduciary duties to shareholders and turn away from talks with private equity giant KKR about a possible reorganization.
Various entities under the umbrella of Mudrick Capital Management have in the past two months amassed a stake of 9.9 percent in Brentwood-based Quorum, which runs 24 hospitals and has been struggling with a large debt load since being spun out of Community Health Systems nearly four years ago.
Mudrick representatives on Monday wrote to Quorum directors requesting a meeting and laying out a case for seeking avenues other than reorganizing at the behest of KKR, which early this month said its conversations with Quorum had turned to broad restructuring options that would likely leave equity investors out in the cold.
“There is no basis for such a value destructive event,” attorney David Rosner wrote on behalf of Mudrick. “The company is currently solvent and there remains substantial value for shareholders. Management’s own accounting indicates that substantial equity value exists.”
Instead of a restructuring, Mudrick is pushing Quorum to secure a short-term bridge loan to avoid bankruptcy or another restructuring. Doing so, he says, will give the company time to create value from its cost savings with revenue cycle management company R1 and elsewhere.
“The board should suffer no illusions whether this is the correct path,” Rosner wrote Monday. “Boards routinely examine strategic alternatives and opt not to pursue them when shareholder value is not maximized. The board should do that here and reject the restructuring path advocated by certain creditors.”
In an emailed statement, Quorum leaders reiterated what they said last month about KKR’s suggestions, saying they are in “in constructive discussions” with various parties about a possible recapitalization.
“Our objective is to reach a consensual agreement that enables us to reduce debt and annual interest expense and enhance our ability to maximize value and invest in future growth,” the statement also read. “We fully expect our hospitals and affiliates to continue normal operations throughout this process, and we remain focused on providing outstanding care and support to patients in the communities we serve.”
Mudrick’s letter and call for a resolution more constructive than a full reorganization didn’t do much for Quorum’s beaten-up shares Tuesday. On a day when the market was up 8 percent heading into the last half hour of trading, Quorum (Ticker: QHC) was up 4 percent to 50 cents. That’s still down more than 50 percent from the mark of a month ago.
This post originally appeared in our sister publication, the Nashville Post.