Prospect Medical Holdings, Inc. and its debtor affiliates have filed their Joint Chapter 11 Plan and Disclosure Statement, outlining a path to liquidate the troubled healthcare company's remaining assets following controversial hospital closures in Pennsylvania and ongoing sales processes for facilities in California and Connecticut.
The hospital operator, which filed for bankruptcy protection on January 11, 2025, in the U.S. Bankruptcy Court for the Northern District of Texas (Case No. 25-80002), is seeking creditor approval on a plan that would distribute proceeds from asset sales and litigation claims to creditors through a complex waterfall structure negotiated with key stakeholders.
"Each Debtor's Board of Directors has approved the transactions contemplated by the Plan and described in this Disclosure Statement, and each Debtor believes that the compromises contemplated under the Plan are fair and equitable, maximize the value of each of the Debtors' estates, and provide the best recovery to stakeholders," the filing states.
The plan, filed on May 23, 2025, comes after months of turbulence for the healthcare provider, which at the time of its bankruptcy filing operated 16 hospitals across several states. The company faced mounting operational challenges including COVID-19 effects, inflation, pension underfunding, a cybersecurity attack, and regulatory issues.
Creditors will vote by class, with the deadline set for July 31, 2025. Major voting classes include MPT Agreed Claims, PhysicianCo Term Loan Claims, PBGC Secured Claim, Insured Claims, and General Unsecured Claims. The confirmation hearing is scheduled for August 7, 2025.
A central component of the plan is a global settlement with Medical Properties Trust (MPT), approved by the bankruptcy court on March 20, 2025. The settlement resolves complex issues related to Prospect's real estate leases and financing arrangements with MPT, providing what the company calls "certain economic effects of recharacterizing the MPT Master Leases as secured financings."
The disclosure statement reveals that Prospect faced significant challenges before bankruptcy, including approximately $312 million in underfunded pension liabilities as of November 2024 and approximately $33 million in outstanding liabilities under the CARES Act. In August 2023, the company suffered a cybersecurity attack that "compromised its IT systems and sensitive data, and resulted in lost and delayed collections."
In a controversial move that sparked community outcry, Prospect closed its Pennsylvania hospitals (Crozer Health) after being unable to find a buyer despite extensive efforts involving the Commonwealth of Pennsylvania and the Pennsylvania Attorney General. The Pennsylvania closures led to approximately 2,500 former employees filing a WARN Act class action against the debtors on May 2, 2025.
The plan document outlines ongoing sale efforts for the company's California and Connecticut assets, pursuant to bidding procedures approved on March 19, 2025. Additionally, the company has worked to sell PhysicianCo assets to Astrana Health, Inc. for approximately $745 million, with the Debtors' portion of those proceeds estimated at $67.5 million.
Paul Rundell, Prospect's Chief Restructuring Officer, signed the filing. A Transaction Committee consisting of independent directors Jeremy Rosenthal and Alan Carr, along with Von Crockett, has been overseeing an independent investigation into potential claims against related parties and MPT.
The plan provides for the creation of a GUC Trust to pursue causes of action for the benefit of general unsecured creditors. The plan document states, "The GUC Trust will be established and receive the GUC Trust Assets" with an initial contribution of $10 million and a subsequent contribution of $40 million from net proceeds of assigned estate causes of action.
Notably, the disclosure statement references a U.S. Senate investigation and report released on January 7, 2025, by Senators Chuck Grassley and Sheldon Whitehouse, which criticized Leonard Green & Partners' 11-year majority ownership of Prospect. The report "alleges a pattern of mismanagement that prioritized shareholder investments over patient and provider well-being."
Prospect is represented in the bankruptcy by Sidley Austin LLP, with Thomas R. Califano, Rakhee V. Patel, William E. Curtin, Patrick Venter, and Anne G. Wallice serving as attorneys for the debtors.
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