Bonds backing Medical Properties Trust were up this morning after the REIT reached an interim settlement deal over leases with Steward Health Care. The final approval is scheduled for Sept. 17.
Yesterday, the Bankruptcy Court for the Southern District of Texas granted the global settlement, stipulating the transfer of 23 hospitals previously operated by Steward to operators designated by MPT. Under the agreement, MPT will waive all claims against Steward, including approximately $6bn in lease and debt obligations. MPT has also consented to the sale of three hospitals in Florida to Orlando Health for $439.5mn, with $395mn in net sale proceeds will be transferred to Steward.
On the heels of the settlement, the REIT’s $1.4bn 5% unsecured notes due 2027 were trading at 86 for a 10.3% yield, up from 84 prior to the court decision. The $900mn 4.625% unsecured notes due 2029 were trading at 79.7 for a 9.9% yield today, up from 77.5 prior. The $1.3bn 3.5% unsecured notes due 2031 were trading around 70 earlier today, up from around 68 prior.
MPT’s common shares were up around 17% today at $5.64, for a $3.38bn market cap, and up around 15% YTD.
Following the court decision, the REIT announced it has leased 15 of the 23 hospitals previously operated by Steward to four tenants. The cash rent payment on these properties will not be charged for the remainder of the year and are expected to begin in Q1’25, fully stabilizing by the end of 2026.
The settlement between the tenant and its landlord comes after Steward sued MPT last month, accusing the REIT of undermining the health system’s sale process of 31 hospitals by interfering with bids and demanding excessive allocations of sale proceeds to real estate.
Steward Health filed for bankruptcy on May 6, carrying $1.2bn in prepetition funded secured debt. To date, the distressed hospital company has secured around $787mn for a third of its hospitals. However, the company announced the closure of four hospitals, two in Massachusetts and two in Ohio.
Amid Steward’s bankruptcy process, MPT amended again during Q2 its credit agreement to provide additional covenant flexibility through Sept. 30, 2025. The changes involve increasing maximum leverage ratios, decreasing interest coverage ratios and waiving a 10% cap on unencumbered value attributable to tenants in bankruptcy—namely Steward. The credit agreement changes also take down revolver commitments to $1.28bn, reducing liquidity by $120mn, which follows a $400mn reduction in commitments earlier this year.
In MPT’s Q2 earnings report, management said it has raised $2.5bn of liquidity year to date, surpassing its $2bn target for the full year. Proceeds have been used to repay 2024 debt maturities and “address” 2025 maturities, with $1.3bn of debt scheduled to come due in Q1 of next year. That is followed by a $2.3bn maturity wall in 2026.
As of June 30, the REIT’s liquidity stood at $1.5bn, including $853mn in cash and $690mn available under the revolver. That compares with around $1.4bn at the end of Q1.
In Q2, MPT’s revenue declined around 21% year over year to $266.5mn, while adjusted EBITDAre fell 26.6% to $257mn.
Erica Carnevalli
erica.carnevalli@levfininsights.com
+1 917 770 6402
