Steward Health Care System LLC has unveiled its strategy to exit bankruptcy through a liquidation plan that hinges on a $125 million litigation financing commitment to pursue claims potentially worth billions, according to court documents filed on April 28 in the Southern District of Texas Bankruptcy Court.
The once-sprawling healthcare system, which filed for Chapter 11 protection in May 2024 with nearly 30,000 employees and 31 hospitals, has since sold or transferred 28 hospitals to 12 different operators and divested its Stewardship Health managed care business for $245 million to an affiliate of Kinderhook Industries.
"The Debtors believe that the Plan provides all holders of Claims, including Allowed Administrative Expense Claims, greater recoveries than any alternative path, including dismissal or conversion of these chapter 11 cases to proceedings under chapter 7 of the Bankruptcy Code," Steward stated in its 332-page disclosure statement.
The proposed liquidation plan establishes two primary vehicles to monetize remaining assets: a Litigation Trust to pursue valuable legal claims and a separate Plan Trust to distribute proceeds to creditors according to bankruptcy priority rules.
Central to the restructuring is a commitment from the FILO Secured Parties—Steward's primary secured lenders—to provide up to $125 million in litigation funding to pursue claims that include an $885 million insurance claim related to flood damage at Norwood Hospital, approximately $370 million in claims against commercial healthcare payors, and potential avoidance actions worth an estimated $300 million.
"The Debtors believe that they may assert Investigation Claims in aggregate amounts in excess of $1 billion," the filing states, referring to potential claims against current and former insiders of the company.
The plan also includes a novel "Administrative Expense Claims Consent Program" designed to accelerate payments to vendors and other administrative creditors who agree to accept less than full payment. Under the program, creditors who don't opt out by July 1, 2025, will be deemed to accept payment of 50% of their allowed claims from a $12.5 million settlement fund. The plan estimates total administrative claims of approximately $127 million.
"The Administrative Expense Claims Consent Program and any and all distributions contemplated thereby are contingent upon confirmation of the Plan," the disclosure statement notes, adding that at least 75% of administrative claims by dollar amount must participate for the program to proceed.
The FILO Secured Parties, who are providing the litigation financing, will receive "Class A" interests in the Litigation Trust, giving them priority recovery from litigation proceeds. Only after their claims are satisfied will "Class B" interests held by the Plan Trust (which benefits unsecured creditors) receive distributions.
Steward's collapse represents one of the largest healthcare bankruptcies in recent years. According to the filing, the company entered bankruptcy with approximately $1.2 billion in funded debt obligations and $6.6 billion in long-term lease obligations. Through a global settlement with Medical Properties Trust (MPT), which owned the real estate for 30 of Steward's 31 hospitals, MPT released over $842 million in claims and waived obligations under master leases worth over $6.6 billion.
The company cited several factors for its financial distress, including the COVID-19 pandemic, which "caused a sharp decline in elective patient visits" and increased costs, tightening of the healthcare labor market, and "lagging, industry-wide reimbursement rates." The disclosure statement also reveals the company is subject to multiple government investigations, including probes related to its operations in Malta.
William Transier, Alan Carr, and Monica Blacker will serve on the Plan Administrator Committee to oversee the liquidation process.
Creditors will vote on the plan by July 1, 2025, with confirmation expected shortly thereafter. According to the proposed timeline, a Litigation Trust would be established by the earlier of July 8, 2025, or one business day after the confirmation date.
Steward Health Care System LLC and its affiliated debtors are represented by Weil, Gotshal & Manges LLP and Latham & Watkins LLP in the bankruptcy proceedings, filed as Case No. 24-90213 in the United States Bankruptcy Court for the Southern District of Texas.
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