Market Overview

Verity Health System Files for Protection under Chapter 11 to Reorganize and Facilitate an Orderly and Efficient Sale Process

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  • All hospitals to continue to operate and provide high-quality care
    to patients throughout this process
  • Verity intends to sell all or some of its assets in Chapter 11 and
    is actively seeking potential buyers
  • Additional liquidity of up to $185M secured to ensure financial
    stability throughout the reorganization process

Verity Health System of California, Inc. ("Verity Health," or "Verity,"
or "the System"), a nonprofit healthcare system, today filed voluntary
petitions for protection under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Central District of California –
Los Angeles Division. Verity has secured debtor-in-possession financing
of up to $185 million. This additional liquidity will enable continued
operations without interruption to high-quality patient care, employees
and suppliers throughout the Chapter 11 process.

This filing follows Verity's previous press release on July 9, which
stated that the System has been exploring strategic options to address
the issues facing the System. Today's announcement follows a thorough
process of considering a range of alternatives for the System's
hospitals, including the potential sale of some or all of the hospitals
and related healthcare businesses.

The entities that are filing today are:

  • De Paul Ventures San Jose Dialysis, LLC
  • De Paul Ventures, LLC
  • O'Connor Hospital
  • O'Connor Hospital Foundation
  • Saint Louise Regional Hospital
  • Saint Louise Regional Hospital Foundation
  • Seton Medical Center Foundation
  • Seton Medical Center, including Seton Medical Center Coastside campus
  • St. Francis Medical Center
  • St. Francis Medical Center Foundation
  • St. Vincent de Paul Ethics Corporation
  • St. Vincent Dialysis Center
  • St. Vincent Medical Center
  • St. Vincent Medical Center Foundation
  • Verity Business Services
  • Verity Holdings, LLC
  • Verity Medical Foundation

"After a diligent process of assessing all possible options alongside
our financial and legal advisors, Verity Health has made the best
strategic decision for all of our patients, employees and other
stakeholders," said Rich Adcock, CEO of Verity Health. "Despite many
efforts over the last decade to create opportunities for success, we can
no longer swim against the tide of our operating reality, which includes
a legacy burden of more than a billion dollars of bond debt and unfunded
pension liabilities, an inability to renegotiate burdensome contracts,
the continuing need for significant capital expenditures for seismic
obligations and aging infrastructure."

Adcock continued: "Several other hospitals in California and across the
U.S. have completed this process and have emerged to continue to care
for patients, support employees, and serve the community. Those
hospitals are now in improved financial and operational health. We are
confident that today is a first critical step toward putting each
facility on better footing for the future. Most importantly, we remain
focused on our commitment to providing high-quality care to patients in
underserved communities without disruption throughout this process."

DIP Financing

Verity Health has secured up to $185 million in debtor-in-possession
("DIP") financing to support its ongoing operations during the sale
process. This additional financing, combined with normal operating
revenue will help ensure Verity is able to meet its commitments to
patients, employees, and suppliers while also successfully selling its
existing operations.

Sale Process

Verity Health plans to consummate sales under Section 363 of the U.S.
Bankruptcy Code. Potential buyers will have the opportunity to submit
offers to acquire assets, including O'Connor Hospital, Saint Louise
Regional Hospital, Seton Medical Center, Seton Medical Center Coastside,
St. Vincent Medical Center and St. Francis Medical Center. All offers
will be evaluated to ensure the highest and best acquisition
agreement(s) are achieved for the benefit of Verity Health's patients,
employees, creditors and other stakeholder groups.

"We are pursuing various strategic options for each of our six
hospitals, with a focus on working with potential buyers who can
continue the mission of patient care at each hospital," said Mr. Adcock.
"Through the sales process, we will be putting our hospitals in a better
position for long-term success."

Historical Events Leading to Today's Filings

The System was originally owned and operated by the Daughters of Charity
of St. Vincent de Paul, Province of the West. Verity Health was formed
in July 2015, when the Daughters of Charity selected BlueMountain
Capital Management LLC ("BlueMountain"), a private investment firm, to
recapitalize the health systems operations and transition leadership of
the health system to the new Verity Health System. Prior to that,
Daughters of Charity had been unsuccessful in an affiliation with
Ascension Health Alliance and a sale to Prime Healthcare Services.

The financial and operational issues facing Verity Health System, are
born out of a myriad of inherited, historical challenges. Operating
losses had plagued the System's predecessor for some time due to, among
other things, challenging cost structure, low reimbursement rates and
the ever-changing healthcare landscape.

"After years of investment to assist in improving cash flow and
operations, Verity's losses continue to amount to approximately $175
million annually on a cash flow basis," said Mr. Adcock.

Additional Information

Verity has established a helpline to ensure a prompt response to
questions from patients and suppliers, which may be accessed at 1-888-249-2741.
Additional information can be found at http://www.kccllc.net/verityhealth.

Verity Health is advised in this matter by Dentons US LLP, Cain Brothers
and Berkeley Research Group.

Verity Health System

Verity Health System is a nonprofit healthcare system. Its hospitals
include 1,650 inpatient beds, six active emergency rooms, a trauma
center and a host of medical specialties including tertiary and
quaternary care. Verity's two Southern California hospitals are St.
Francis Medical Center in Lynwood and St. Vincent Medical Center in Los
Angeles. In Northern California, O'Connor Hospital in San Jose, St.
Louise Regional Hospital in Gilroy, Seton Medical Center in Daly
City and Seton Coastside in Moss Beach are part of Verity Health.

Verity Health also includes Verity Medical Foundation. With more than
100 primary care and specialty physicians, VMF offers medical, surgical
and related healthcare services for people of all ages at
community-based, multi-specialty clinics conveniently located in areas
served by the Verity hospitals.

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