St. Margaret’s files Chapter 11 bankruptcy for Peru, Spring Valley hospitals

St. Margaret’s Health has filed for Chapter 11 bankruptcy and disclosed at least 1,000 creditors who are owed not less than $10 million but not more than $50 million.

Two petitions were filed Thursday – one for St. Margaret’s Health-Spring Valley and one for St. Margaret’s-Peru (formerly Illinois Valley Community Hospital) – in Chicago with the U.S. Bankruptcy Court for the Northern District of Illinois.

The twin petitions, signed Thursday by Tim Muntz, president and CEO of St. Margaret’s Health, showed a seemingly identical listing of creditors.

“OSF HealthCare has been made aware that St. Margaret’s Health-Peru and St. Margaret’s Health-Spring Valley have filed for bankruptcy,” OSF said in a Friday statement. “OSF HealthCare will seek the bankruptcy court’s approval of our signed agreement for the purchase of specific St. Margaret’s Health-Peru assets.

“Once we receive the court’s approval, we hope to close our transaction and take possession of the assets as quickly as possible. We are looking forward to expanding our service to the Illinois Valley communities by reopening the Peru hospital campus and other properties that are part of the transaction.”

St. Margaret’s declined to issue a statement beyond the contents of the Chapter 11 filing.

Two state lawmakers signaled that Thursday’s filing was not unexpected.

State Rep. Lance Yednock, D-Ottawa, said that at one point the parties involved had hoped to transfer the Peru facility outright from St. Margaret’s to OSF. Over time, it became clear that a bankruptcy filing would first be needed to address the rising debt load.

“My disappointment is they couldn’t figure this out before bankruptcy,” Yednock said.

State Sen. Sue Rezin, R-Morris, said Thursday’s filing would facilitate the transfer of the Peru hospital.

“I’m surprised it has taken St. Margaret’s so long to file for bankruptcy,” Rezin said. “Now that they have, it will allow OSF to begin the process to purchase the hospital.”

Court records now on file provide only a snapshot of the hospitals’ liabilities. One record, for example, itemizes the 20 largest unsecured claims. Among the top in-state creditors are the Illinois Department of Healthcare and Family Services, which is owed $2.5 million, and Blue Cross Blue Shield of Illinois, which is owed $1 million.

Most of the largest creditors were not local, with one exception: Anesthesia Associates Ltd., of Sandwich, which is owed $307,000.

The Peru hospital, formerly known as Illinois Valley Community Hospital, was closed in January after Muntz said the hospital lost its contracted emergency room staff and had to cease operations. OSF HealthCare later announced that it would be acquiring the hospital.