Prospect Medical Holdings: Three-Phase Chapter 11 Unwinds PE-Backed Hospital Chain

Prospect Medical Holdings, Inc. filed for chapter 11 bankruptcy protection on January 11, 2025, in the U.S. Bankruptcy Court for the Northern District of Texas, becoming the second major private equity-backed hospital chain to file within a year. The filing came just four days after a bipartisan Senate Budget Committee report documented how Leonard Green & Partners extracted $645 million in dividends while leaving the health system with $2.8 billion in liabilities. Prospect's chapter 11 ultimately evolved into a three-phase proceeding: HCo (hospital-related) debtors filing in January, PCo (physician-related) debtors filing in July after the $708 million Astrana Health sale closed, and TopCo holding companies filing in September to trigger D&O insurance provisions. The case concluded with Plan confirmation on December 15, 2025, after completing sales of California, Connecticut, and Rhode Island hospitals while abandoning Pennsylvania's Crozer Health system—leaving Delaware County with just two emergency rooms for 576,000 residents.

The Multi-Phase Filing Structure

Prospect's chapter 11 case proceeded in three distinct phases, each serving a specific purpose as the company unwound its corporate structure spanning hospital operations, physician networks, and holding companies.

The initial filing (HCo Debtors) encompassed Prospect Medical Holdings, Inc. and its hospital subsidiaries across California, Connecticut, Pennsylvania, and Rhode Island. At the time of filing, Prospect operated 16 hospitals and listed between $1 billion and $10 billion in both assets and liabilities with more than 100,000 creditors. The company had accumulated approximately $2.3 billion in total funded debt obligations, of which roughly $1.1 billion sat at entities that initially sought chapter 11 protection.

The HCo filing aimed to stabilize operations, access DIP financing, and launch parallel sale processes for hospital assets across all four states. First day motions were approved on January 14, 2025, enabling the company to continue paying employees and maintain critical supplies.

The second phase (PCo Debtors) arrived on July 7, 2025, when Prospect's physician-related affiliates filed chapter 11 petitions. The PCo Debtors included PHP Holdings, LLC (parent of PhysicianCo), Prospect Health Plan, Inc. (a Knox-Keene licensed entity), medical groups in California, Texas, Arizona, and Rhode Island, Prospect Medical Systems, RightRX pharmacy, and Alta Newport Hospital (doing business as Foothill Regional Medical Center).

The PCo filing came immediately after Astrana Health closed its $708 million acquisition of Prospect's physician network assets on July 1, 2025. With those assets sold, the remaining PCo entities had no employees, no operating revenue, and existed solely to wind down remaining liabilities—including approximately $772.4 million in secured debt owed to Medical Properties Trust and Centerbridge/Blue Torch. The Court approved an additional $30 million in priming DIP financing for the legacy debtors over objection of a secured creditor.

The third and final phase (TopCo Debtors) involved Chamber Inc., Ivy Holdings Inc., and Ivy Intermediate Holding Inc.—three holding companies with no ongoing operations, employees, or significant assets. These TopCo entities filed specifically to trigger the "financial insolvency" provision in D&O insurance policies, which eliminates the self-insurance retention (SIR) requirement and maximizes insurance recoveries for claims against directors and officers. The filing responded to claims asserted against management.

DIP Financing and First Day Relief

Prospect secured two DIP facilities to fund operations through the restructuring process, with the primary lender ultimately providing more than $100 million after contested priming litigation.

JMB Capital Partners Lending, LLC provided the primary DIP financing in the form of a super-priority senior secured term loan. The initial commitment stood at $100 million, with $29 million available immediately upon interim approval on January 14, 2025. The Court granted the financing on a contested "priming" basis over objection from Medical Properties Trust, the company's landlord and secured lender.

As the case progressed, the JMB facility expanded significantly. In July 2025, the Court approved an additional $30 million upsize to support the PCo debtor wind-down, again over secured creditor objection. Further upsizes in November and December 2025 brought total JMB commitments to approximately $130 million or more by Plan confirmation.

eCapital Healthcare Corp. provided a separate revolving credit facility of up to $90 million to provide working capital for ongoing hospital operations. The facility received interim approval alongside the JMB term loan on January 14, 2025, with final approval following on February 14, 2025.

Medical Properties Trust challenged the DIP financing at the first day hearing, arguing that the priming structure would harm its secured position as holder of the $757.4 million convertible note, $150 million Pennsylvania mortgage loan, and substantial lease claims. The Court overruled the objection and approved the DIP on a contested basis. The disputes continued through stay relief motions, abandonment proceedings, and ultimately a global settlement under the Plan.

The Five Major Transactions

Prospect's chapter 11 case functioned primarily as a sale vehicle, with five major transactions disposing of hospital and physician network assets across all four operating states.

The largest transaction involved the sale of Prospect's physician networks and health plan operations to Astrana Health, Inc. (NASDAQ: ASTH). Originally priced at $745 million, the deal closed on July 1, 2025, at an adjusted purchase price of approximately $708 million. Astrana acquired Prospect Health Plan, medical groups in California, Texas, Arizona, and Rhode Island, Prospect Medical Systems, RightRX pharmacy, and the 177-bed Foothill Regional Medical Center (doing business as Alta Newport Hospital).

The acquisition brought Astrana a network of over 11,000 providers serving approximately 600,000 members across Southern California, Texas, Arizona, and Rhode Island. Astrana used approximately $67 million of the proceeds to pay down the JMB DIP facility, with the balance supporting wind-down activities and creditor recoveries. The transaction left Astrana with approximately $700 million of net debt on its consolidated balance sheet.

Prospect's California hospital portfolio—which represented the company's original operating base—sold to Golden State Hospital, LLC and other buyers pursuant to a sale order entered on August 29, 2025. The California sale closed on December 17, 2025, just two days after Plan confirmation.

Connecticut's hospital assets sold in a multi-track process after an earlier $435 million deal with Yale New Haven Health was terminated.

Hartford HealthCare (Manchester Memorial and Rockville General): Hartford HealthCare served as the stalking horse bidder for Manchester Memorial Hospital and Rockville General Hospital, collectively known as the Eastern Connecticut Health Network. The bid of $86.1 million was the only one received, with no competing bidders emerging at auction. The deal received approval under Connecticut's expedited "emergency certificate of need" process, which requires a decision within 60 days. As a condition of approval, Hartford HealthCare must maintain all services for a minimum of three years, including labor and delivery and intensive care at Manchester Memorial. The sale order was entered on October 28, 2025.

UConn Health (Waterbury Hospital): UConn Health acquired Waterbury Hospital for $13 million plus assumption of approximately $35 million in liabilities. The sale order was entered on November 20, 2025. Waterbury had operated under an independent monitor appointed by the state due to ongoing compliance concerns.

Yale New Haven Health Settlement: The Connecticut hospital sales came after the collapse of Yale New Haven Health's $435 million agreement to acquire all three hospitals. Signed in October 2022, the deal unraveled amid litigation—Yale sued Prospect in May 2024 claiming the company failed to uphold its end of the agreement and was "driving away" physicians and vendors. Prospect countersued. The parties ultimately settled in October 2025, with Yale paying Prospect $45 million to resolve the dueling lawsuits. The August 2023 cyberattack that crippled operations at Prospect's facilities around the country occurred while the transaction was pending.

The Centurion Foundation acquired CharterCARE Health Partners—which operates Roger Williams Medical Center and Our Lady of Fatima Hospital in Rhode Island—for approximately $160 million. Prospect and Centurion had originally signed an agreement in November 2022 but were unable to close at that time due to regulatory hurdles. Rhode Island regulators imposed 40 closing conditions on the sale, including $80 million in required funding contributions to address life safety violations and facility repair concerns. The transaction closed during the bankruptcy, with sale orders entered on November 5, 2025.

Unlike the going-concern sales in other states, Prospect's Pennsylvania hospitals closed after no viable buyers emerged. The Crozer Health system, Delaware County's largest hospital network, began shutting down in spring 2025 despite a $40 million lifeline from state and local officials attempting to attract a buyer.

Taylor Hospital closed on April 26, 2025, followed by Crozer-Chester Medical Center on May 2, 2025. The closures triggered layoffs of approximately 2,651 employees, with terminations occurring between April 25 and May 2, 2025. Prospect had previously closed Delaware County Memorial Hospital and Springfield Hospital in 2022, bringing total closures in the county to four hospitals during the company's ownership.

Delaware County declared a seven-day disaster emergency following the closure announcement. Governor Josh Shapiro stated that Prospect "pillaged these hospitals for their own gain." The Pennsylvania hospitals had suffered roughly $92 million in total losses in a 12-month period, despite the state intervention. State officials concluded that the "damage inflicted" by Leonard Green "who prioritized their own wealth over the well-being of a community, was too much to overcome."

With Crozer Health closed, Delaware County now has just two emergency rooms—Riddle Hospital and Mercy-Fitzgerald Hospital—for 576,000 residents, creating what healthcare advocates describe as a medical desert in one of Philadelphia's most densely populated suburbs.

MPT Stay Relief and Landlord Disputes

Medical Properties Trust occupied multiple positions in Prospect's capital structure—landlord under the $1.55 billion sale-leaseback, holder of the $757.4 million convertible note, and Pennsylvania mortgagee for $150 million—making it the largest creditor constituency other than the DIP lenders.

MPT challenged the DIP financing at the January 2025 first day hearing, arguing that priming liens would impair its secured position. The Court overruled the objection, and disputes continued through multiple contested matters.

After Crozer Health's abandonment became inevitable, MPT filed a stay relief motion on October 6, 2025, seeking to exercise remedies against the abandoned Pennsylvania properties. The Court granted stay relief on October 28, 2025, allowing MPT to foreclose on the Pennsylvania mortgage loan and pursue its remedies as landlord of the now-shuttered facilities.

MPT ultimately reached a global settlement under the Plan, including resolution of stay relief disputes, treatment of the convertible note, release of lease and mortgage claims, and support for Plan confirmation.

Plan of Reorganization

Prospect's Plan of Reorganization evolved through seven iterations between May and December 2025 before reaching confirmation.

The confirmed Plan provides for a GUC Trust to administer distributions to general unsecured creditors (Class 8). Insured Claims (Class 7) receive payment from applicable insurance proceeds, while Section 510(b) subordinated equity-related claims (Class 9) receive treatment consistent with their subordinated priority.

Multiple parties contested confirmation, including WARN Act plaintiffs asserting labor law claims related to the 2,651+ layoffs at Crozer Health, the State of Connecticut (which opted out of the Plan's third-party releases to preserve its rights to pursue claims), various insurers disputing D&O and other coverage matters, and the Foundation for Delaware County alleging breach of a 10-year operating commitment for Crozer Health.

Connecticut's opt-out from the Plan releases, filed on October 9, 2025, preserved the state's ability to pursue claims outside the bankruptcy proceeding despite supporting confirmation of the Plan itself. The state is owed more than $67 million in unpaid health provider taxes dating back to March 2022.

Private Equity Extraction: The Leonard Green Story

Leonard Green & Partners' 2010-2021 ownership period provides context for Prospect's capital structure and liabilities. The company had once been an active acquirer of cash-strapped hospitals, expanding from five California facilities to 17 hospitals nationwide before the company accumulated significant leverage. A bipartisan Senate Budget Committee investigation led by Chairman Sheldon Whitehouse (D-RI) and Ranking Member Chuck Grassley (R-IA) reviewed more than one million pages of documents from Leonard Green and Prospect, releasing its findings just four days before the bankruptcy filing.

Less than two years after Leonard Green acquired Prospect in 2010, the health system paid out $188 million in dividends to LGP's investors. The largest dividend came in 2018, when the company's owners took out a $1.12 billion loan and paid themselves a $457 million dividend. CEO Sam Lee received approximately $90 million from that single distribution; Leonard Green shareholders received $257 million.

In total, Prospect paid out $645 million in dividends and preferred stock redemption to investors, with $424 million going directly to Leonard Green investors. The Senate investigation estimated Sam Lee received at least $112 million from Prospect over his tenure; another executive received $83.2 million. Including management fees, Leonard Green received approximately $658 million during its ownership.

Leonard Green also engaged in a $1.55 billion sale-leaseback deal with Medical Properties Trust, selling hospital real estate to the REIT and leasing it back. The transaction removed hard assets from the balance sheet while creating long-term lease obligations.

By 2019, Prospect faced $2.8 billion in liabilities, underperforming hospitals, and collapse of critical healthcare services. The Senate investigation found that LGP and PMH's primary focus was on financial goals rather than quality of care, leading to health and safety violations, understaffing, and hospital closures. Executives at Leonard Green granted stock options to Prospect officials for reaching financial goals but not for patient quality and safety improvements.

Leonard Green exited in 2021, leaving Prospect with $3 billion in liabilities and a hospital portfolio that included multiple underperforming facilities. Eight hospitals closed during or directly after LGP's majority ownership, with six shuttering after the private equity firm exited. Both Prospect Medical and Leonard Green disputed the Senate investigation findings.

State Regulatory Battles

Prospect's operations spanned four states, each of which responded differently to the company's financial distress and restructuring.

Connecticut listed as one of Prospect's top 30 creditors, owed more than $67 million in unpaid health provider taxes dating back to March 2022. State regulators had appointed an independent monitor at Waterbury Hospital and imposed enhanced oversight at Manchester Memorial prior to bankruptcy. The Attorney General filed a Statement of Interest in the bankruptcy proceedings.

Connecticut opted out of the Plan's third-party releases, preserving its rights to pursue claims outside the bankruptcy. The state used an expedited "emergency certificate of need" process for the Hartford HealthCare acquisition, compressing what would normally be a lengthy regulatory review into 60 days. Two years after buying the Connecticut hospitals, Prospect had taken out a $1.12 billion mortgage against the properties to pay dividends to investors and executives.

Pennsylvania experienced the most direct impact. The state and county provided a $40 million lifeline while Prospect worked to find a buyer for Crozer Health, but no viable bids materialized given the system's $92 million annual losses. Governor Shapiro condemned Prospect's actions, stating the company "pillaged these hospitals for their own gain."

The Foundation for Delaware County sued over breach of a 10-year operating commitment Prospect had made when acquiring Crozer. State officials concluded that the damage Leonard Green inflicted by prioritizing investor wealth over community well-being was too severe to overcome.

Rhode Island imposed 40 regulatory conditions on the Centurion Foundation's acquisition of CharterCARE, including $80 million in required funding contributions to address life safety violations and facility repairs. The Attorney General filed informational briefs in the bankruptcy proceedings. The state's hospitals in Prospect's portfolio had generated concerns about maintenance deferral and patient safety for years.

The August 2023 Cyberattack

A ransomware attack in August 2023 crippled operations at Prospect's facilities around the country, creating operational disruptions. The attack resulted in data theft, patient notification obligations, and reputational damage that reduced patient volume at affected hospitals.

The cyberattack occurred during the period when the $435 million Yale New Haven Health transaction was pending. Ongoing cyber-related litigation claims were excluded from the Astrana sale, meaning the debtors retained exposure to potential HIPAA violations and healthcare information law claims that will be addressed through the GUC Trust.

Industry Context: The PE-Hospital Bankruptcy Wave

Prospect's bankruptcy follows the May 2024 bankruptcy of Steward Health Care, previously owned by Cerberus Capital Management.

Both chains sold hospital real estate to Medical Properties Trust and leased it back, removing hard assets while creating ongoing lease obligations. Both extracted hundreds of millions in dividends. Both experienced hospital closures. Over the decade of ownership, Cerberus earned over $700 million for its investors from Steward, compared to $424 million Leonard Green extracted from Prospect.

A BMJ study published in December 2025 found that hospitals acquired by REITs were 5.7 times more likely than non-acquired peers to close or go bankrupt four years later. One-quarter of REIT-acquired hospitals examined either closed or filed for bankruptcy during the study period, compared with 4% of non-acquired hospitals.

Massachusetts became the first state to effectively prohibit future sale-leasebacks of certain types of hospital real estate, signing the legislation into law on January 8, 2025—three days before Prospect's bankruptcy filing.

Private equity investments in healthcare grew from $5 billion annually in 2000 to an estimated $104 billion in 2024. As of April 2025, PE firms owned 488 U.S. hospitals.

Post-Confirmation Developments

The Confirmation Order was entered on December 15, 2025, followed by the California hospital sale closing on December 17, 2025. A Post-Confirmation Order entered December 18, 2025, established the administrative framework for wind-down activities, including a February 17, 2026, deadline for professional fee applications.

Several creditors filed notices of appeal from the Confirmation Order in late December 2025, including Allscripts/Veradigm and additional creditors whose objections were overruled. The Patient Care Ombudsman continues to file monthly reports, and contract rejection objections are still being resolved.

Professional fees for lawyers, bankers, and consultants in the bankruptcy have topped $77 million, an administrative cost that reduces funds available for creditor distributions.

Frequently Asked Questions

How many debtor entities filed in the Prospect Medical Holdings bankruptcy?

The case involved three waves of filings: HCo Debtors (hospital-related entities, January 11, 2025), PCo Debtors (physician-related entities, July 7, 2025), and TopCo Debtors (holding companies, September 19, 2025). The TopCo entities filed specifically to trigger D&O insurance provisions.

What happened to the Pennsylvania hospitals?

Taylor Hospital closed April 26, 2025, and Crozer-Chester Medical Center closed May 2, 2025, after no viable buyers emerged despite a $40 million state/county lifeline. The closures resulted in 2,651 layoffs and left Delaware County with only two emergency rooms for 576,000 residents.

Who bought Prospect's physician networks?

Astrana Health (NASDAQ: ASTH) acquired Prospect Health Plan, the medical groups in California, Texas, Arizona, and Rhode Island, RightRX pharmacy, and Foothill Regional Medical Center for $708 million, closing July 1, 2025.

What happened to the Yale New Haven Health deal?

Yale New Haven Health signed a $435 million agreement in October 2022 to acquire all three Connecticut hospitals, but the deal collapsed amid litigation. Yale paid Prospect $45 million in October 2025 to settle dueling lawsuits, and the hospitals were sold separately to Hartford HealthCare and UConn Health.

How much did private equity extract from Prospect?

Leonard Green & Partners extracted approximately $424 million in dividends during its 2010-2021 ownership. Total investor dividends reached $645 million. A $1.55 billion sale-leaseback to Medical Properties Trust added lease obligations while removing real estate assets.

What is the GUC Trust?

The confirmed Plan establishes a trust for distribution to general unsecured creditors (Class 8 claims), administered post-confirmation by a trust administrator. Distributions will depend on remaining asset recoveries after satisfaction of secured and administrative claims.

Why did the TopCo entities file bankruptcy?

Chamber Inc., Ivy Holdings Inc., and Ivy Intermediate Holding Inc. filed specifically to trigger the "financial insolvency" provision in D&O insurance policies, which eliminates the self-insurance retention (SIR) requirement—maximizing insurance recoveries for claims against directors and officers.

Were any parties able to opt out of the Plan releases?

Yes. The State of Connecticut opted out of the Plan's third-party releases, preserving its rights to pursue claims outside the bankruptcy proceeding. Connecticut is owed more than $67 million in unpaid health provider taxes.

What was the total DIP financing commitment?

JMB Capital Partners provided the primary term loan totaling approximately $130 million after multiple upsizes, while eCapital Healthcare Corp. provided a $90 million revolving credit facility for working capital needs.

How many hospitals did Prospect close during the bankruptcy?

Two Pennsylvania hospitals—Taylor Hospital and Crozer-Chester Medical Center—closed in spring 2025 after no buyers emerged. Combined with Delaware County Memorial Hospital and Springfield Hospital closures in 2022, four hospitals closed during Prospect's ownership. The California, Connecticut, and Rhode Island hospitals were sold as going concerns.

For more coverage of healthcare restructurings and other chapter 11 developments, explore the ElevenFlo blog.