Medical Properties Trust Says Regulator’s Hold on Transaction ‘Deemed Immaterial’

A California state regulator has ordered a hold on a transaction between Medical Properties Trust (MPT) and Prospect Medical Holdings.

The deal, which aimed to provide crucial financial support for Prospect Medical Holdings, one of MPT’s major tenants, was put on hold on July 20 by the California Department of Managed Health Care (DMHC). However, MPT failed to disclose this information in its second-quarter results or in its quarterly report filed with the Securities and Exchange Commission (SEC), the Wall Street Journal (WSJ) reported Friday (Aug. 18).

MPT announced the deal with Prospect on May 23, stating that it would receive equity in Prospect’s managed-care business, PHP Holdings, instead of cash payment for loans, unpaid rent, and other outstanding amounts, according to the report.

However, it remains unclear how Prospect would pay MPT if the deal is permanently rejected by regulators, the report said. The DMHC is currently reviewing the transaction.

Responding to the WSJ article, MPT said in a Friday press release that the California regulator’s hold sent to Prospect on July 20 is “a standard, expected and non-controversial part of the approval process for this transaction.”

The company added that the regulator requires additional information before issuing final approval and that the firm fully expects to receive approval once the regulator has received all of the required information.

“In the unlikely event that the regulator does not grant approval for the transaction, MPT’s investment in PHP would remain a convertible note with identical economics to equity ownership,” MPT said in the release. “As a result, DMHC’s request was deemed immaterial to MPT’s financials and thus did not require disclosure.”

MPT, the largest hospital landlord in the nation, has played a significant role in private-equity firms’ expansion into healthcare facilities, according to the WSJ report. With over 400 hospitals acquired, MPT has often enriched private-equity firms that sold to the firm at high prices. However, some deals have turned sour, with MPT tenants closing facilities and reducing services.

MPT’s rapid growth in recent years has been fueled by low-interest rates and a thriving stock market, the report said. However, with interest rates rising and money becoming tighter, MPT is now facing a period of contraction. The company has been extending financial support to its troubled tenants, including Prospect and Steward Health Care.