Mercy Iowa City’s plan ‘fatally flawed,’ creditors committee says

By Sarah Lizee

Olympia, Wash., March 25 – Mercy Iowa City’s Chapter 11 plan is “fatally flawed and patently unconfirmable,” the official committee of unsecured creditors said in an objection filed Monday with the U.S. Bankruptcy Court for the Northern District of Iowa.

The committee said it would be a “colossal waste of time and estate resources” for the court to approve the disclosure statement and let the debtors solicit votes on the plan.

The group said the plan improperly treats the master trustee claim held by Computershare Trust Co., NA, as an allowed secured claim in the amount of $62 million without any basis.

“The value of the master trustee’s collateral is well below that amount, and the master trustee is not entitled to any post-petition interest, fees or expenses because the master trustee claim is under-secured,” the committee said in the objection.

The group said that based on its own analysis, the collateral is reasonably valued at about $55.5 million.

The committee also took issue with the plan’s releases in favor of bondholder representative Preston Hollow Community Capital, Inc. and the debtors’ directors and officers who served in those capacities post-petition.

“The plan may not, through the debtor releases, eviscerate the committee’s challenge rights under the second interim cash collateral order, and any and all claims against the debtors’ current and former directors and officers, especially those based on prepetition acts or omissions, must be preserved for the benefit of the debtors’ estates and creditors,” the committee said.

The group added that the disclosure statement lacks adequate information necessary for creditors to make an informed decision whether to accept or reject the plan.

The Iowa City-based hospital filed Chapter 11 bankruptcy on Aug. 7, 2023 under case number 23-00623.

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