Judge approves Steward settlement, delays decision on converting to Chapter 7

Bankruptcy Judge Christopher Lopez approved a settlement agreement between Steward Health and its secured creditors that allows the case to continue moving forward, but acknowledged outstanding issues that still need to be addressed over funding. 

Last week, the trustee for the U.S. government filed a motion asking that the case be converted from Chapter 11 to Chapter 7, which is full liquidation. 

The filing was submitted by Kevin Epstein, the U.S. Trustee for the Southern District of Texas, citing that Steward Health Care System has expenses "north of $100 million."

The filing stated that Steward would be unable to pay the estimated $127 million in administrative fees and would like to liquidate the remaining assets. 

Lopez declined to rule on that motion, saying that the only matter before him today that required immediate action was the agreement with creditors who have put up cash to the failed hospital system in an effort to make sure they get paid as a part of the outcome of the bankruptcy. 

Lopez acknowledged during the hearing that administrative fees are extremely high, possibly higher than is even known, but that ruling on how they will be handled is a "matter for another day." 

The approval of the settlement with creditors was necessary because of a previous order that set a deadline, meaning that if Lopez either rejected the settlement or declined to rule, the funding would immediately cease and no one would get paid. 

Steward filed its Chapter 11 reorganization plan on May 6, 2024, and has been selling some of its assets, including Trumbull Regional, Hillside in Trumbull County, and Sharon Regional in Mercer County. 

The filing stated, "The debtors' estates simply cannot afford this unnecessary financial gamble."

But Steward filed its plan with the court on Wednesday, stating its efforts have led to the group repaying approximately $2.8 billion (excluding debt service and repayment obligations).

Part of the plan submitted Wednesday includes payment to employees, hospitals and others, excluding Steward stockholders or its owners.

The court held a hybrid hearing on Thursday at 11:30 a.m. EST to review the motion and settlements in the case. That hearing continued until about 6:40 p.m. EST before spilling into Friday's hearing. 

The next hearing in the matter is scheduled for July 8.