The $1.4 million that El Paso Children’s Hospital is expected to pay its lawyers and consultants on its bankruptcy protection case over the next three months is just the beginning of an expensive process, a bankruptcy expert said.
“When I saw those fees, I was sick to my stomach,” said Andy Krafsur, an El Paso businessman who practiced bankruptcy law and has been a bankruptcy trustee in El Paso for years. “They billed almost $600,000 in the month of May alone and they are just getting warmed up.”
Krafsur referred to the restructuring cost and professional fees that El Paso Children’s Hospital is expected to pay by August, according to documents submitted by the hospital in its bankruptcy filing earlier this month.
The bankruptcy court documents state that in May alone, Children’s Hospital paid $439,000 to Jackson Walker, an Austin law firm, and $135,000 to AlixPartners, a Chicago-based business consulting firm that specializes in restructuring troubled businesses.
Mark C. Herbers, who was named chief executive officer of Children’s Hospital in February, is a director of AlixPartners, according to his profile on the LinkedIn social media site.
The documents show that Children’s Hospital is expected to pay AlixPartners $200,000 a month in June and July, Jackson Walker $200,000 in July, and $100,000 monthly in other unspecified restructuring costs in June and July.
It’s unclear whether those restructuring costs include Herbers’ salary as Children’s CEO.
Herbers and El Paso Children’s Hospital board members have not responded to multiple requests from the El Paso Times for information about restructuring costs outlined in the bankruptcy filing.
“These fees are common, but it does not mean this is right,” Krafsur said.
“It’s the most significant financial crisis that we have in our community and it’s in the wrong hands. It’s not in the hands of the community. It’s in the hands of out-of-town lawyers and professionals and I think it’s very dangerous,” he added.
Krafsur said Children’s recent filing for reorganization under Chapter 11 of the Bankruptcy Code has the potential to harm the community in the long term, affecting local bond ratings and the ability to fund public projects in the future.
“In my opinion, I don’t think that the Children’s Hospital’s representation is really all that concerned with what happens with the community here. I think this is just a bunch of out-of-town lawyers that are going to make a lot of money and guess who is going to pay for all this? Us, taxpayers,” Krafsur said.
Although, the bankruptcy court still has to approve the fees for June and July, Krafsur said he expects the bill to be higher than $1.4 million.
Krafsur encouraged the community to get involved in the process and request that the Children’s Hospital board of directors fill multiple board vacancies with people who understand the bankruptcy process. After a recent spate of resignations, Children’s board has only five members, while its bylaws call for 11.
He said the public also can push for the appointment of a trustee “who could very quickly and hopefully painlessly resolves this case.”
“Let’s be vocal and let the judge know that we are not happy about it. Express our disappointment and propose a solution,” he said.
Krafsur said he has submitted an application to serve on the Children’s board of directors, but he has not heard back.
The decision by Children’s Hospital to file for bankruptcy protection was made after months of failed negotiations with University Medical Center of El Paso over a multimillion debt and oversight of Children’s, which is a separately licensed, independent hospital. In the bankruptcy filing, Children’s Hospital said it owed unsecured creditors at least $11.4 million, of which $9.2 million is owed to Texas Tech University. Children’s Hospital is disputing $162,000 some unsecured creditors say it owes, according to court filings.
Also in the bankruptcy filing, Children’s Hospital is disputing the amount owed to UMC for services and rent stating that UMC has inflated the cost of services to Children’s Hospital.
According to UMC, El Paso Children’s Hospital owes it close to $90 million as of Dec. 31.
UMC spokesman Ryan Mielke said the legal costs for UMC in the bankruptcy case won’t be cheap either.
UMC hired Norton Rose Fulbright US LLP last year to assist the hospital in the negotiation process with Children’s Hospital and it is now representing UMC in bankruptcy court. The firm has offices in Dallas, Houston, San Antonio and Austin.
Mielke said UMC paid Norton Rose Fulbright US LLP $289,448 from June 2014 to March of this year. He said UMC has not received the bill for April and May.
“You look at what we are protecting, we are looking at $90 million, now $100 million of El Paso County assets,” Mielke said. “It’s a necessary expenditure to make sure that El Paso County’s interests are protected.”