Brookfield’s Healthscope secures extension on $1.6b debt

Michael SmithHealth editor

Nov 12, 2024 – 5.24pm

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Lenders to private hospital operator Healthscope have given the company five months grace to negotiate better funding deals from health insurers after agreeing to a waiver that extends the life of Healthscope’s $1.6 billion loan.

People familiar with the loan, who are not authorised to speak publicly, said a refinancing deal struck earlier this year included covenant waivers until the end of March next year.

Canadian asset manager Brookfield acquired Healthscope, which owns 38 hospitals, for $4.4 billion in early 2019. However, profits disappeared during the pandemic as hospitals shut out elective procedures, and wage costs and inflation soared.

Healthscope chief Greg Horan has been given more time by lenders to come up with funding. Oscar Colman

Healthscope, which has previously warned of the possibility of a covenant breach, has been given more runway from its lending syndicate to come up with additional funding. A covenant waiver is when a lender temporarily forgives any breach of conditions by a borrower.

Healthscope chief executive Greg Horan and chairman Len Chersky remain in talks with some private health insurers and landlords. They have warned the company could be forced to close some facilities if it does not receive the financial help it is seeking.

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The company plans to charge patients insured with Bupa and some not-for-profit funds up to an extra $100 per night to stay in one of its hospitals. It has threatened to terminate its contracts with those insurers if they do not comply. It has also secured extra out-of-cycle funding payments from the other three big insurers, Medibank, HCF and NIB.

Australia’s $22 billion private hospital sector is struggling with inflation and weak admissions while more people turn to the public sector because of soaring out-of-pocket costs. Labor last month said it would not bail out hospitals but acknowledged they face financial pressures following a government review of the sector.

Healthscope is also seeking to secure a better deal from the landlords it leases its properties from. It remains in talks with Toronto-listed Northwest on potential rent relief or other alternatives, two people with knowledge of those talks said on Tuesday.

It wants rent relief from HMC Capital too, an alternative asset manager founded by David Di Pilla, but sources said there were no negotiations under way. HMC has previously indicated it had no appetite for further rent relief as it had already made a contribution when it acquired the properties last year.

Healthscope argues profitable health insurers need to increase their contribution to private hospitals to reflect soaring wage inflation or else it will be forced to close more facilities. However, insurers argue they should not have to bail out Brookfield for a bad investment decision.

Brookfield last week posted record third-quarter results with fee-related earnings up 14 per cent year-on-year to $US644 million ($982 million). Net income for the three months ending September 30 was $US129 million, it said.

In Australia, Brookfield also owns Victorian energy transmission group AusNet and building contractor Multiplex. Healthscope declined to comment on Tuesday.

Mr Horan told The Australian Financial Review last month the company had been given a reprieve from its lenders.

“We’ve been able to reach agreement with our lenders to give us the runway and the capacity to do what we need to do here. What I’m focused on is getting the right pricing for the business,” he said.