NEW YORK – April 3, 2024 – Cerberus Capital Management, L.P. (“Cerberus”) today released the following statement regarding the Massachusetts congressional delegation’s hearing today that referenced Cerberus’ prior investment in Steward Health Care (“Steward”):
“Cerberus’ initial investment in Steward in 2010 not only rescued, but restored six struggling Massachusetts hospitals on the verge of closing that were critical to their communities. During our nearly 11-year ownership of Steward, we supported the revitalization of failing community hospitals into a leading healthcare system. Cerberus’ long-term investment made it possible for Steward to continue to serve its communities, employ tens of thousands of professionals, and positively impact millions of patients’ lives.”
Additional Information
- Cerberus saved a failing, insolvent Massachusetts hospital chain;
- Our initial investment in Steward in 2010 not only rescued, but restored six struggling hospitals on the verge of closing that were critical to their communities;
- Cerberus’ rescue of the Caritas Christi Health Care System resulted in more than $800 million of capital support, including the assumption of all pension obligations for current and former Caritas Christi employees, the repayment of virtually all of the system’s outstanding debt, and a commitment to approximately $400 million of capital projects, including six major construction projects that were designed to provide immediate upgrades to each of the Caritas Christi hospitals;
- The State of Massachusetts confirmed that all promised capital commitments were met, including extensive investments in the medical facilities and community-based hospitals;
- It is incorrect and unfair to say that Cerberus’ executives “walked away with an $800 million profit.” These returns primarily benefited our investors, including millions of teachers, firefighters, law enforcement personnel, and municipal workers as well as other pension funds, universities, and endowments. Like most private investment managers, we benefit only after the return of all capital to our investors, plus a preferred return, and only if the pooled investment vehicles that we manage make an overall return on investment. We do not receive incentive fees on an investment-by-investment basis;
- As a registered investment advisor, it is our job and fiduciary duty to responsibly invest the hard-earned funds of our clients. That is what we did in the case of Steward over more than a decade. Like the Senators, we care deeply about the future of retirement security, and the financial interests of the investors that entrust us with their money. We take these fiduciary responsibilities with the utmost seriousness and sincerity;
- The sale-leaseback transaction with Medical Properties Trust, Inc. (“MPT”) in 2016 (six years after Cerberus’ acquisition) did generate a significant dividend for both Cerberus’ investors and Steward’s CEO and Founder Dr. Ralph de la Torre and his management team. It also resulted in Steward generating approximately $485 million in pre-tax liquidity that it used to invest in its healthcare platforms to enhance its ability to deliver quality care to the communities that it served. Again, it is incorrect and unfair to suggest that this transaction was a “looting” of the company. The sale-leaseback transaction with MPT was thoughtfully considered and resulted in material liquidity for Steward. More so, a commissioned independent third-party analysis done in contemplation of the sale-leaseback transaction, and management’s presentation to the Board, confirmed that Steward had more than ample assets, liquidity, and cash flow to support the lease obligations and the execution of management’s business plan. To the best of our knowledge, Steward remained current on its lease obligations to MPT during the entire time of Cerberus’ ownership;
- As a result of significant operational improvements, capital investments of more than $1 billion, and strategic acquisitions, Steward executed and expanded on its vision for quality healthcare and became the largest physician-owned and operated health care system in the United States serving hundreds of communities and supporting over six million patient encounters every year;
- As the company publicly announced in 2020, controlling interest of Steward was transferred from Cerberus to a management group of Steward physicians led by the company’s CEO and Founder Dr. de la Torre. The transaction was conditioned upon the infusion of approximately $400 million of additional fresh capital into Steward and helped ensure that Steward continued to meet the needs of its patients, the communities that it served, and all other stakeholders;
- When our controlling interest concluded in 2020, Steward was financially healthy with substantial liquidity and in compliance with all financial covenants;
- Cerberus has had nothing to do with Steward’s operations and had little to no information about the business and operations of Steward for approximately the last four years.
As previously stated in our response to the Massachusetts congressional delegation’s letter (“the Letter”) to Cerberus:
Under Cerberus’ ownership, Steward more than tripled its physician network, increased its managed lives by over 900%, and advanced risk-based, capitation payments across its populations – all key steps to driving value-based high-quality healthcare. The investments made into Steward enabled it to transform its infrastructure and technology, hire and retain top healthcare personnel, and converted a failing hospital system into a world-class accountable care organization.
In 2016, Steward entered a sale-leaseback transaction with MPT, a publicly traded REIT. Dr. de la Torre was the architect of that transaction, which returned the Cerberus investors’ original investment and generated a dividend for the Cerberus Funds and Steward management team. Steward’s partnership with MPT facilitated the acquisitions of the IASIS healthcare platform and a portfolio of hospitals from Community Health Systems. These transactions expanded Steward’s footprint and led to additional investments in its healthcare delivery platform. These facts directly contradict the allegation in the Letter that Cerberus “literally stripped out and sold the property from underneath these hospitals, creating hundreds of millions of dollars in profits for private equity executives…” At the time that we sold our controlling interest in Steward in 2020 to Dr. de la Torre and his management team, Steward was a success story not just for our investors (teachers, firefighters, law enforcement personnel, municipal workers, pensions, and endowments, among others), but also for all of its stakeholders, including the numerous communities that it served and its more than 1,700 physicians and 42,000 employees supporting over six million patient encounters every year. Not represented in the growth numbers are Steward’s improved quality and efficiency of care, increased productivity, and reduced costs in its hospitals.
The COVID-19 pandemic began to materially impact the United States, and its health care system, in the first quarter of 2020. The pandemic put severe stress on many healthcare systems in the United States. Steward was no exception and had to manage the pandemic’s impact on its operations, staffing, revenue, and capital expenditures. Because the Cerberus Funds invested in Steward were, for the most part, out of their investment periods, they were not able to invest additional capital. Consequently, Steward management and Cerberus considered alternatives to ensure that, if required, Steward would have access to additional capital to continue to fully serve its patients and communities.
Accordingly, as announced in June 2020, Steward and the Cerberus Funds entered a recapitalization transaction with MPT and its affiliates, Steward’s major landlord and holder of a 9.9% equity interest, whereby the Cerberus Funds agreed to exchange the controlling interest in Steward for a $350 million convertible note. The convertible note did not require Steward to pay current interest and had a five-year maturity. In connection with the transaction, MPT and affiliates (including a joint venture with Steward management) agreed to acquire certain of Steward’s assets for approximately $400 million in cash. Half of this cash was funded at closing and the other half was funded into Steward within 60 days post-closing. Consequently, the transaction facilitated the infusion of approximately $400 million of fresh capital into Steward and helped ensure that the company continued to meet the needs of its patients, the communities that it served, and all other stakeholders. At the same time, as noted, Cerberus’ investment moved from controlling shareholder equity to convertible debt. Less than a year later, MPT elected to acquire the convertible note, at a discount to par, ending the Cerberus Funds investment in Steward.
Throughout the entire time of Cerberus Funds’ ownership of Steward, its hospitals and facilities were, to our best knowledge, managed with the capital and liquidity to provide the highest quality care possible. At the time control was passed to Steward’s management, Steward was financially healthy with substantial liquidity and in compliance with all its financial covenants. We are proud of our long-term investment in Steward. During our ownership, Steward continued serving its communities, thereby positively impacting patients’ lives and supporting the retirement savings of individuals, universities, non-profits, foundations, pension plans, and others who entrusted us to invest their funds and support their future pension, retirement, educational, and other needs.
About Cerberus
Founded in 1992, Cerberus is a global leader in alternative investing with investments across complementary credit, real estate, and private equity strategies. We invest across the capital structure where we believe our integrated investment platforms and proprietary operating capabilities create an edge to improve performance and drive long-term value. Our tenured teams have experience working collaboratively across asset classes, sectors, and geographies to seek strong risk-adjusted returns for our investors. For more information about our people and platforms, visit us at www.cerberus.com.
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