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Tennessee-based health system seeks bankruptcy protection

Business mergers and acquisitions are often profitable if the merged entities have sufficient revenue to pay the expenses of the merger and handle any debt that was used to finance the merger. In 2016, Tennessee-based Curae Health bought three Mississippi hospitals from Franklin, a Tennessee.-based Community Health System. Now, Curae and its three hospitals are seeking bankruptcy protection because the merger failed to meet the financial projections that were used to justify the acquisition.

The president of the merged firm explained how pre-merger projections made the transaction seem prosperous. The projected EBITDA or earnings before interest, taxes, depreciation and amortization, appeared sufficient to pay the purchase price and retire corresponding debt. Curae executives also thought that its operating model would save the merged firm from 1-3 percent annually in operating expenses.

These expectations were dashed after the transaction closed. A sharp decline in revenue exceeded the savings in operating costs. The new firm also experienced higher-than-projected operating costs for its information system. Part of the cost increase was caused by the company's inability to obtain financing for the purchase of a new information system. The final blow fell when vendors began to demand advance payment for goods and services. The company currently lists $3.4 million in cash and $96 million in liabilities.

Aggressive business expansions are often undercut by unexpected changes in the economy or unforeseen expenses. In such cases, a Chapter 11 bankruptcy proceeding can often buy time during which the business can reduce costs, sell inefficient assets and take other steps to operate profitably. An experienced bankruptcy attorney can often help review various options and choose a bankruptcy proceeding that will buy as much time as possible to restore the company to profitability.

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