This is certainly an interesting investment case to follow. I...

This is certainly an interesting investment case to follow.

I have a stake in this through MOT (as part of the lending consortium to Healthscope), not HCW. This brings me to a relatively infrequently discussed issue: What rights do debt holders have over Healthscope?From my understanding, Healthscope’s debt covenants were temporarily waived to give the company time to address its challenges. If certain covenants are breached, debt holders may have the right to take over some or all of Brookfield’s equity in Healthscope.

Since access to debt is crucial for a company like Brookfield, it has a strong incentive to maintain goodwill with lenders and minimize financial repercussions.

Private credit firms like Metrics Credit Partners commonly take over both the equity and executive management of businesses when loans go sour. For instance, after breaching its debt covenants, Quadrant Private Equity relinquished control of Pacific Hunter—the owner of Rockpool and other hospitality assets—to Metrics Credit Partners late last year.

When lenders take over a business, their first move is often to replace the CEO or managing director—something we recently saw happen at Healthscope. It’s possible that the lending consortium is already steering decisions at Healthscope in anticipation of Brookfield relinquishing some of the control (the recently replaced CEO of Healthscope is a former Brookfield managing director; the new CEO appears to have no connection to Brookfield, but does have experience advising restructures). With a significant reduction in interest payment obligations (due to the swapping of debt for equity), Healthscope should have little trouble covering its other expenses, including the upcoming 50% rent increase on the 11 properties owned by HCW.

If the above is correct, the lending consortium is unlikely to hold an asset like Healthscope for long. So, long-term buyers may be sharpening their pencils.