NATCHEZ — Adams County may need to put up additional cash to help finalize the sale of Natchez Regional Medical Center.

If that is the case, the cash needed will be to cover the debts the hospital has incurred since filing Chapter 9 bankruptcy in late March.

NRMC has entered a definitive agreement with Community Health Systems for the purchase of the county-owned hospital. CHS already owns Natchez Community Hospital.

“We are in the middle of the closing process with the bankruptcy court, the (debt disbursement) plan and the unsecured creditors,” Adams County board of supervisors attorney Scott Slover said. “I believe the sale is going to get through, but there are some more issues to work out, like whether there is enough cash flow to close the sale.”

The issues are complicated because federal bankruptcy and state bond law apply in the sale. State law requires that before the sale can be completed, the bonds the county holds on behalf of the hospital must be paid. The hospital’s debtor-in-possession (DIP) financing likewise has to be paid off.

A draft of the bankruptcy plan before the court says the hospital will owe approximately $13.96 million in bonds at the time of the sale. The DIP loan is a $1.5 million line of credit with United Mississippi Bank.

Under federal bankruptcy guidance, the debts the hospital has incurred since seeking bankruptcy protection — the costs of supplies or other services — are given top priority for the assumed risk of vendors doing business with a bankrupt business.

“They have an obligation to pay administrative and post-sufficient claim as they come due,” said Scott Phillips, chief executive officer of Healthcare Management Partners and the lead negotiator for the hospital’s sale process. “The bankruptcy courts don’t look favorably on the debtor not paying bills they are incurring after they file bankruptcy.”

Therein lies the issue of cash flow Slover said.

“The hospital is losing money and has been losing money,” Slover said.

In the post-bankruptcy period, everybody believed the issue of cash flow was under control until July, Phillips said.

“It is apparent we are either going to have to get some of those (post-petition) creditors to wait a few months, or we are going to have to find some kind of additional short-term financing for the deals,” Phillips said.

“This is an operating hospital, so these numbers are still in flux, but we have between a $1 million and a $2 million problem to solve here.”

Phillips said he believes the problem can be solved in all sorts of ways that may not require additional borrowing.

“If creditors will say, ‘I will wait 60-90 days,’ it is probably not a problem,” he said.

When the sale is completed, the seller — Adams County — is entitled to the cash flow the hospital earned prior to the sale, but is responsible for any liabilities, Slover said.

In addition to paying off its bond and DIP debt, the county has to place a certain — at this point, officially undisclosed — amount of money in escrow to cover any unforeseen liabilities. Any money in the escrow not used to cover those liabilities will ultimately be paid to the hospital’s unsecured creditors from the bankruptcy.

“You have a cash flow problem with Medicaid and Medicare claims, because they don’t pay the day the services have occurred,” Slover said. “They don’t pay those for 60-90 days, and that is going to impact the overall cash flow since we have to put money aside immediately.”

In an email obtained by The Natchez Democrat, NRMC hospital trustee Lee Martin said the hospital will need $1.5 million to get to closing, and that amount should be removed from the escrow funds.

In his email response dated Thursday, Phillips wrote he was concerned “the community” would lose the buyer, Community Health Systems.

“I do not recommend going back to them on the escrow again,” he said. “We have been over this ground. Given what we know about the hospital’s current exposure, $3 to $4 million appears very reasonable.”

Friday afternoon, Phillips said the escrow issue was already decided when it was adopted in CHS’s asset purchase agreement with the county.