Late evening continuance delays Mercy Iowa City auction until a later date

The move comes without explanation

Without explanation — after a long day in attorney offices in downtown Chicago — Mercy Iowa City at 6:30 p.m. Wednesday evening announced the historic auction for its assets as part Chapter 11 bankruptcy proceedings would be continued “to a later date.”

The decision, according to a court filing made public just after 7:30 p.m., was done in “consultation with the official committee of unsecured creditors” — a group formed to represent the more than 400 individuals and companies that Mercy owes more than $17 million.

Although the continuance did not set a new auction date, Wednesday evening’s court filing indicated it would happen before the sale hearing, set for Oct. 10.

Wednesday’s auction had been scheduled to start at 10 a.m. at the law offices of McDermott Will & Emery LLP in Chicago.

Mercy spokeswoman Eileen Wixted nearing 10:30 p.m. said the auction process was continued “so the parties can continue negotiations.”

As part of Mercy’s Aug. 7 bankruptcy petition, it announced the University of Iowa was offering a “stalking horse” bid for substantially all its assets of $20 million.

That was well below the assessed value of Mercy’s 19 properties — which 2023 property assessments show are worth a combined $137.3 million, according to a review by The Gazette. Using the lower net book value of its real estate, Mercy last month estimated its total net worth — including far more than just property — at nearly $97 million.

The university’s opening offer for Mercy also was just a third of the more than $62 million it owes in secured debt to bondholders, including its largest Preston Hollow Community Capital.

Given the university’s low offer, Preston Hollow in previous court filings aired intentions to use a “credit bid” option to ensure it gets its money back.

Credit bidding lets secured creditors bid the debt that a debtor owes them in an auction for the assets. In this case, Preston Hollow and master trustee Computershare could use that option to bid on Mercy with the nearly $63 million owed to them.

The winning bidder at the action would own Mercy’s assets, free of any of the hospital’s current debt, allowing the bidder then to search for a new operator or sell the assets.

Although Mercy worked into its bidding rules language discouraging credit bidding, it also agreed to expressly allow it. Additionally, negotiated bidding rules removed any requirement the winning bidder would have to maintain Mercy as a health care operation.

Vanessa Miller covers higher education for The Gazette.

Comments: (319) 339-3158; vanessa.miller@thegazette.com