Heywood Healthcare Confirms Plan With 2M Secured Writedown and Liquidating Trust

Heywood Healthcare, Inc. and six affiliated debtors filed chapter 11 on October 1, 2023 in the U.S. Bankruptcy Court for the District of Massachusetts under lead case 23-40817, framing the case as a turnaround restructuring rather than a sale-driven wind-down. The filing came under acute liquidity pressure: a planned MassHealth recoupment was scheduled to start withholding 100% of state-program receivables on January 1, 2024, and the system carried roughly $76.7 million of long-term funded debt across two prepetition bond series, a Siemens term loan, and New Markets Tax Credit obligations on top of about $39 million of trade debt.

The system operated through cash collateral rather than a new-money DIP and reached a confirmed plan on September 30, 2024 that wrote down more than $12 million of secured debt, capitalized a liquidating trust for unsecured creditors, and closed a $5 million superpriority exit facility. The plan went effective on October 1, 2024, and Foley & Lardner — debtors' counsel — was recognized by the Turnaround Management Association as Non-Profit Turnaround of the Year for the engagement, with Dentons' representation of the unsecured creditors' committee separately recognized in the same TMA awards cycle.

Debtor	Heywood Healthcare, Inc. (7 jointly administered debtors)
Court	U.S. Bankruptcy Court, District of Massachusetts
Case Number	23-40817
Petition Date	October 1, 2023
Confirmation Date	September 30, 2024
Effective Date	October 1, 2024
Plan Type	Reorganization with secured-debt deleveraging and GUC liquidating trust
Exit Facility	$5 million superpriority ABL revolver

EMR Conversion, MassHealth Recoupment, and Path to Filing

Heywood Healthcare described itself in the first day declaration of Thomas J. Sullivan as a regional health system serving 15 communities across the North Central and North Quabbin regions of Massachusetts, with a service area population of slightly more than 80,000 and roughly 1,650 employees including a medical staff of about 200. The system included Heywood Hospital and Athol Hospital and offered acute, specialty, surgical, and behavioral-health services, with normal operations continuing during the reorganization.

The first day declaration attributes the filing to a multi-year liquidity squeeze rather than a single triggering event. Sullivan identified a costly 2021 electronic medical record conversion that disrupted billing and collection cycles, persistent labor shortages and wage pressure, supply-chain cost inflation, relatively low commercial reimbursement rates, rising costs tied to the Waterstone Surgical Pavilion project, and repayment demands associated with pandemic-era CMS funding as the cumulative drivers of cash burn. Local reporting tracked the emerging financial pressure at the Gardner-based system through the months leading up to the petition, and contemporaneous coverage confirmed that the system intended to keep operating while it negotiated a restructuring.

The acute liquidity event named in the first day filings was state-program recoupment. Sullivan stated in the first day declaration that MassHealth had advanced roughly $6 million on an interim basis and was scheduled to begin withholding 100% of otherwise payable claims beginning January 1, 2024 until that advance was repaid. With MassHealth representing a major share of net patient revenue, full withholding would have stripped working capital out of the system at the same time that trade payables and bond service were already running ahead of cash inflows, leaving little room outside of bankruptcy for the system to negotiate a survival plan. The filing came in a Massachusetts hospital-distress cycle that also produced the much larger Steward Health Care chapter 11 the following year, which advocacy outlets in the state tracked alongside other regional facility distress.

Capital Structure and Series 2019 Bond Architecture

The system's prepetition capital structure ran predominantly through tax-exempt municipal bonds and a small bank-style term loan. The first day declaration describes approximately $76.7 million of consolidated long-term funded debt at the petition date, broken into multiple discrete tranches with overlapping security packages. About $26.04 million of Series 2019A bonds, $9.665 million of Series 2019B-1 bonds, and $10.105 million of Series 2019B-2 bonds sat at the top of the funded-debt stack, secured by liens on real estate, gross receipts, receivables, and deposit-account collateral.

A roughly $8.205 million term loan held by Siemens sat alongside the bond facility, and approximately $16.66 million of New Markets Tax Credit-related loans were tied to the Athol Memorial Hospital NMTC Holdings, Inc. structure that later became material to case-closing mechanics. About $6 million of other unsecured funded debt rounded out the long-term debt stack, and the debtors reported approximately $39 million of trade debt at filing — a number that mattered both for going-concern viability and for the eventual size of the unsecured class.

The capital-structure mix shaped what was possible in the case. Bond debt of that size in a small hospital system is difficult to refinance out-of-court, the Siemens term loan offered a discrete contractual write-down target, and the NMTC structure required care because federal tax-credit relationships would survive emergence regardless of how the bond and term-loan claims were treated.

Cash Collateral Use and the Committee Milestone Fight

The case operated on cash collateral instead of a traditional DIP facility from day one. By the time of the assented sixth interim cash collateral order, the debtors were authorized to use substantially all cash and cash equivalents other than specified state funding, subject to an approved budget. The order treated the prepetition bond facility and prepetition term loan facility as the core secured parties with liens on real estate, gross receipts, receivables, and deposit-account collateral, subject to identified exceptions. The standard adequate-protection package included replacement liens, adequate-protection claims, waivers under sections 506(c) and 552(b), and subordinated carve-out treatment.

The cash-collateral budget also incorporated approximately $13.25 million of Massachusetts state funding for working capital and payroll, while expressly reserving rights on whether that state funding constituted prepetition collateral. That reservation mattered because committee positions throughout the case turned on whether state appropriations supplemented or replaced collateral the secured parties otherwise held. FTI Consulting served as financial advisor to the official committee of unsecured creditors and shaped much of the cash-management and adequate-protection analysis the committee took into the contested phase.

In June 2024, the unsecured creditors' committee filed a limited objection to modifications to the sixth interim cash collateral order, arguing that the secured parties were undersecured and should not continue receiving postpetition interest and professional-fee payments, and objecting to a proposed plan-related "lock-up" that would have conditioned continued cash collateral use on a restructuring path acceptable to the prepetition secured parties. The committee also criticized the proposed milestones as unworkable and potentially coercive in light of pending committee litigation and plan feasibility concerns. The debtors replied that the committee's valuation and adequate-protection objections were preserved for confirmation, that missing a milestone would trigger notice and a short default period rather than automatic termination, and that the milestones were intended to control cash burn and move the hospital cases toward emergence rather than coerce a particular plan outcome. The dispute did not derail the case, but it set the substantive battle lines that the eventual plan settlement had to clear.

A separate operational issue running through the case was payroll disruption tied to the broader Kronos ransomware incident. Bloomberg Law reported that healthcare workers' implied-contract claims tied to the UKG/Kronos hack survived early dismissal in 2025, a category of risk that featured in many provider cash-management discussions during the same window.

Plan Treatment, GUC Note, and Liquidating Trust

The modified second amended disclosure statement and related plan materials describe a restructuring that reduced secured debt by more than $12 million through a full write-down of the Siemens term loan and a partial write-down of bond debt coupled with a waiver of related deficiency claims. The deleveraging was significant relative to the system's revenue base and was the central reason the case proceeded as a reorganization rather than a 363 sale.

For general unsecured creditors, the plan established a liquidating-trust structure funded with $4.75 million in cash and a $5.25 million subordinated GUC note. The disclosure statement breaks the cash component into $4 million on the effective date plus another $750,000 payable on October 1, 2025. The GUC note was described as a $5.25 million unsecured subordinated note bearing 2% interest and payable from an excess-cash-sweep mechanism, and the same plan materials tied unsecured-creditor recoveries to a share of net Pavilion-claim proceeds — preserving the estate's litigation rights against Waterstone Surgical Pavilion counterparties as a defined recovery channel for the trust. The plan documents also addressed the Athol-affiliated NMTC structure as part of the broader reorganization, with the Athol Memorial Hospital NMTC Holdings, Inc. case retaining its separate identity on the docket through the post-confirmation period.

The post-emergence capital structure included a $5 million superpriority exit facility described in the disclosure statement as an asset-based revolving line priced at SOFR plus 6.00% with a three-year term and two possible one-year extensions. New bonds shared in the excess-cash-sweep waterfall alongside the GUC note, ordering the post-effective cash flows so that ordinary working-capital needs were met before residual amounts cascaded to subordinated paper. The confirmation order approved the liquidating trust agreement, the GUC note, and the superpriority exit facility documents as integral plan components and approved broad release provisions with carve-outs, including carve-outs for Pavilion-related claims, specified liquidating-trust assets, and claims involving actual fraud, willful misconduct, or gross negligence.

Confirmation, Effective Date, and Bar Dates

The court entered the findings of fact, conclusions of law, and order confirming plan on September 30, 2024. A week later, the debtors filed a notice that the effective date occurred on October 1, 2024 at 12:00 a.m. Eastern. The 24-hour gap between confirmation and effectiveness reflected a transaction that was already documented and pre-cleared at confirmation: the exit facility, GUC note, liquidating trust agreement, and bond-amendment papers were ready to close on the day after the order entered.

The October 7, 2024 effective-date notice also set November 6, 2024 as the administrative-claims and rejection-claims bar date for pre-effective-date matters and November 21, 2024 as the final professional-fee-claims deadline. Those two bar dates fixed the window for cleaning up administrative liability before the trust began to administer prepetition unsecured claims, and they framed the timing for the final fee applications discussed below.

Patient Care Ombudsman Reporting

A Patient Care Ombudsman was appointed to monitor clinical quality during the reorganization, an expected procedural step in a hospital chapter 11 governed by section 333 of the Bankruptcy Code. The ombudsman's first report identified physician bonus payment delays and supply-chain pressures as monitored risks but described overall operations as stable, and the second ombudsman report characterized the debtor as operating with a risk level between low and mid-level while noting that staffing and supply-chain challenges had not materially impacted patient care. That posture mattered for plan feasibility because a deteriorating clinical record would have constrained the system's ability to reach confirmation as a going concern.

The case sat within a broader healthcare-distress cycle documented in Gibbins Advisors' analysis of healthcare chapter 11 filings covering 2019 through 2024, in which hospital-sector filings were a meaningful share of total healthcare distress and reimbursement pressure repeatedly featured among the named drivers.

Foley's Final Fee Application and Professional Retentions

Foley & Lardner served as debtors' counsel, and Dentons represented the unsecured creditors' committee, with Andrew Helman and Lauren Macksoud among the Dentons partners leading that engagement. Foley's final fee application for the period from October 1, 2023 through September 30, 2024 sought $4,843,025.50 in fees and $21,395.94 in expenses, for a total request of $4,864,421.44. The application reports that Foley had already received about $2.29 million in interim payments during the case, leaving the remainder for final allowance and post-effective payment.

Foley's final fee narrative describes substantial effort devoted to case administration and restructuring negotiations, including repeated work on nonconsensual interim cash collateral orders, budget negotiations, Massachusetts forbearance discussions over Medicaid recoupment, and the exit-financing and bond-document framework that supported confirmation. The fee load is consistent with a hospital case that operated on cash collateral for nearly a year and required negotiated bond amendments and a custom GUC note rather than a packaged out-of-court resolution. The Foley team that staffed the engagement included Alan H. Einhorn, Edward J. Green, Tamar N. Dolcourt, and Mary Rofaeil, among others. Both firms were recognized by the Turnaround Management Association for the engagement.

Final Decree Path and the Athol NMTC Carve-Out

The plan went effective on October 1, 2024, but the cases did not close immediately. By June 2025, the reorganized debtors moved for entry of a final decree, arguing that the affiliate cases had been substantially administered even though liquidating-trust and claim-reconciliation work would continue in the remaining case. The motion preserved a pathway for the surviving NMTC entity to keep filing post-confirmation reports while the rest of the corporate family was discharged from continuing oversight.

On September 8, 2025, the court entered the final decree order closing several Heywood affiliate cases effective September 30, 2025 and directing future matters to proceed in Athol Memorial Hospital NMTC Holdings, Inc. case no. 23-40821, which remained open as the surviving case. The carve-out reflected the federal tax-credit obligations attached to the NMTC structure: closing the holdings entity at the same time as the operating affiliates would have created an awkward administrative posture for the credit relationships that had to survive emergence on their stated schedule.

The February 18, 2026 post-confirmation report filed in the Athol Memorial Hospital NMTC Holdings, Inc. case for the quarter ending September 30, 2025 reflects that the remaining case was still open, reported no current-quarter professional-fee payments, and showed no distributions yet to claim or interest holders under the plan in that reporting period. The trust-distribution timing for unsecured creditors therefore continues to depend on resolution of remaining claims and on the excess-cash-sweep mechanics that drive the GUC note and Pavilion-claim recoveries.

Key Timeline

• October 1, 2023: Heywood Healthcare and six affiliates filed chapter 11 petitions in the District of Massachusetts under lead case 23-40817.
• October 2, 2023: Thomas J. Sullivan filed the first day declaration outlining operations, funding pressures, and the prepetition capital structure, and the debtors began operating through cash collateral rather than a new-money DIP.
• April 29, 2024: The debtors filed the assented sixth interim cash collateral order.
• June 4–5, 2024: The committee and debtors briefed disputes over modified sixth-interim-order milestones and adequate-protection payments, with the debtors' reply preserving valuation issues for confirmation.
• September 30, 2024: The court entered the order confirming the plan.
• October 1, 2024: The plan became effective.
• November 6 and November 21, 2024: Administrative-claims and final professional-fee bar dates fixed by the effective-date notice.
• June 2025: Reorganized debtors filed an assented motion for final decree.
• September 8, 2025: The court entered the final decree order closing affiliate cases effective September 30, 2025 while leaving Athol Memorial Hospital NMTC Holdings, Inc. open.
• February 18, 2026: Athol Memorial Hospital NMTC Holdings, Inc. filed a post-confirmation report showing the remaining case still open.

Frequently Asked Questions

Why did Heywood Healthcare file chapter 11?

The first day declaration attributes the filing to a multi-year liquidity squeeze driven by a costly 2021 EMR conversion, billing and collection delays, labor shortages, supply-chain cost pressure, low commercial reimbursement, Waterstone Surgical Pavilion project costs, and pandemic-era CMS repayment demands, against a backdrop of MassHealth's scheduled 100% withholding starting January 1, 2024 to recover an approximately $6 million state advance.

Did the debtors obtain DIP financing?

No. The case operated on cash collateral throughout, with the prepetition bond facility and Siemens term loan as the core secured parties. By the assented sixth interim order, the debtors were authorized to use substantially all cash and cash equivalents subject to an approved budget that incorporated approximately $13.25 million of Massachusetts state funding for working capital and payroll.

How were unsecured creditors treated under the plan?

The plan established a liquidating trust funded with $4.75 million in cash ($4 million at effectiveness plus $750,000 on October 1, 2025) and a $5.25 million subordinated GUC note bearing 2% interest payable from an excess-cash-sweep mechanism, with additional unsecured-creditor recoveries tied to a share of net Pavilion-claim proceeds.

When did the plan become effective?

The court entered the confirmation order on September 30, 2024, and the plan became effective on October 1, 2024 at 12:00 a.m. Eastern.

Why is the Athol Memorial Hospital NMTC Holdings case still open?

The September 8, 2025 final decree order closed several Heywood affiliate cases effective September 30, 2025 but kept Athol Memorial Hospital NMTC Holdings, Inc. case no. 23-40821 open as the surviving case. The remaining case continues to host post-confirmation reporting and claims-reconciliation work tied to the New Markets Tax Credit structure that had to survive emergence.

Who is the claims agent for Heywood Healthcare?

Stretto serves as the claims and noticing agent for Heywood Healthcare, Inc. and its affiliates. The firm maintains the official claims register and distributes case notifications to creditors and parties in interest.

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