Westworld Community Healthcare, the rural hospital operator weighed down by massive debts from its expansion, said Wednesday that it has filed for bankruptcy reorganization and may be forced to close if it cannot find new financing.
The filing late Tuesday under Chapter 11 of the U.S. Bankruptcy Code came just 10 days after a Georgia hospital chain dropped its $90-million offer for the ailing Lake Forest, Calif., company because of the "financial complications" of dealing with Westworld's many creditors.
In its bankruptcy filing in Santa Ana, 5-year-old Westworld listed assets of $85 million and liabilities of $191.3 million as of March 31. The largest creditor is Bank of America, which is owed about $70 million, company officials said. An additional $65 million is owed to bond owners.
Westworld officials said Wednesday that the bank and its other creditors had refused to extend the company further credit while it attempts to reorganize under court protection.
Glen Caster, vice president, said the company has been looking for new financing for the past six months, but will be forced to liquidate its holdings entirely if it cannot secure new loans.
Although Westworld's bankruptcy petition was not a surprise, the filing caps an aggressive ascent in 1984 and 1985, which was followed by an equally spectacular slide that began early last year.
At its peak, Westworld operated 38 hospitals and two drug-abuse clinics and had several thousand employees scattered throughout 15 states. It now has 14 facilities with 1,200 workers in eight states. About 35 employees still work at the company's Lake Forest headquarters, about half the total of just two weeks ago, when the company announced its latest round of layoffs.
The expansion was financed with heavy borrowing, which the company could not repay when patients began avoiding its hospitals last year because of the pinched rural economy and the company's own unusually high prices for its services. Those pricing policies also caused insurance companies and Medicare to delay reimbursement, further crimping Westworld's cash flow.
From 1986 through March, Westworld lost $135 million.
Caster said that even if Westworld finds new financing, it intends to keep only five of its remaining facilities--two hospitals and a drug-abuse facility in California and two hospitals in Texas. The other facilities are up for sale, and Caster said several persons and groups had expressed interest in one or more of the operations. He said he believes that all of the facilities will remain open.
Caster said the bankruptcy filing could increase Westworld's chance of selling its operations because its creditors are now subject to the jurisdiction of the bankruptcy court.