Judge approves $450,000 loan for Palm Drive

SANTA ROSA -- Palm Drive Hospital was granted a $450,000 emergency loan -- less than what it was seeking -- from a U.S. bankruptcy court judge, which will help the cash-strapped hospital make payroll and meet operating expenses through bankruptcy proceedings.

Michael Sweet, an attorney working with Palm Drive Healthcare District, which owns and oversees the hospital, confirmed that the loan is being secured by a $150-a-parcel tax that funds the district. Earlier this month, the district board voted to enter Chapter 9 proceedings and to close all services at the hospital by April 28, after a bleak financial picture emerged over the last few months.

Attorneys and representatives for the district had initially sought $600,000 to help pay for operations, but judge Alan Jaroslovsky on Tuesday approved $450,000. The loan will be secured through a lien on the district's parcel tax revenue.

Also on Tuesday, the Sonoma County Board of Supervisors unanimously approved a bridge loan of $1.8 million to Palm Drive to help fund the impending closure of the hospital. The county's claim will be second to existing bond holders from previous sales in 2005 and 2010. In 2010, the hospital emerged from Chapter 9 protection.

A  final bankruptcy hearing is scheduled for May 1.

According to a staff report prepared for county supervisors, the institution needs about $925,000 to meet payroll, $400,000 to pay vendors, $340,000 for employee health insurance, $280,000 for physician payments and about $150,000 for clinic location rent and liability insurance.

Over the year, finances at Palm Drive have deteriorated. Accounts payable for Palm Drive increased to nearly $6.5 million at the end of February from about $5.8 million in June 2013, according to Tom Harlan, chief executive officer of the hospital. He cited an October audit of the hospital prepared by Moss Adams for the 2012--2013 fiscal years. Accounts payable increased by nearly 75 percent since 2012.

The hospital also owes vendors another $6 million, according to the Chapter 9 filing. Major creditors include Utah-based Innovasis, a developer of spine implant devices that is owed more than $1.6 million; San Francisco-based McKesson Technologies, which is owed just shy of $1 million; and PG&E, which is owed about $334,000.

Total liabilities were $9.6 million, up 54.8 percent from fiscal year 2012 and even more in the first months of fiscal year 2014, hospital officials said.

Without the recent bankruptcy loan, the hospital will have only $3,318 cash on hand by the week ending April 26.

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