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Hutcheson Medical Center in Fort Oglethorpe, Ga.
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Walker County to Hutcheson promissory note

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Hutcheson Medical Center officials promised last week to pay Walker County, Ga., millions, eventually. But legal experts say that promise is worth less than the paper on which it is printed.

With almost 800 creditors waiting for about $80 million from Hutcheson, the bankrupt hospital's governing body issued a promissory note on March 25 pledging $4.6 million to Walker County.

Commissioner Bebe Heiskell is confident she will receive the much-needed, seven-figure windfall.

Others aren't so sure.

Floating in Chapter 11 bankruptcy, Hutcheson cannot promise to make a new payment like this one. But Bobby Guy, former co-chairman of the American Bankruptcy Institute's Healthcare Committee, said the note is legal because it's not coming from the hospital; it's coming from the Hospital Authority of Walker, Catoosa and Dade Counties.

The hospital authority is Hutcheson's governing body. Technically, it's not in bankruptcy.

But to pay off the note, the authority would need money from the hospital. Jessica Dawn Gabel, a Georgia State law professor, said other hospital creditors lined up ahead of Walker County likely would object in court.

"The note is legal," she wrote in an email. "But there's probably a creditor or two out there considering a challenge."

The roots of this promise run back to 2013, when Hutcheson officials needed loans from Erlanger Health System and Regions Bank to pay the North Georgia hospital's employees. If Hutcheson couldn't pay off those loans, Catoosa County promised to cover about $3.5 million of the debt and Walker County about $4.5 million.

With that money due this year and Hutcheson bankrupt, the two counties had to make those payments. Catoosa County leaders dipped into their reserves. In Walker County, Heiskell took out a tax anticipation note -- essentially a new loan to pay off the old one.

Then last week, the hospital authority promised to pay Heiskell back. The note includes interest at 7.5 percent a year, payable monthly. That would give Walker County about $28,000 every 30 days. The note doesn't say when those payments will start. Heiskell thinks the money will begin to arrive in May.

The promise to Walker County came as a surprise to Catoosa County Attorney Clifton "Skip" Patty.

He didn't hear anything about the plan from the authority board members Catoosa County appointed, including Dr. Darrell Weldon, the authority's chairman. Weldon did not return multiple calls seeking comment.

Patty said the Catoosa County Commission will ask the authority for the same deal.

"I'm just kind of shocked they would give a promissory note to Walker when Catoosa is in the same circumstance," he said.

The repayment date for the principal isn't specified, either -- just whenever Heiskell demands. She said she would wait until the hospital's finances get turned around. She thinks that will happen sooner than critics do.

She believes the money for Walker County will come out of a settlement between Hutcheson and Erlanger, two hospitals in a bitter divorce. When Erlanger began managing Hutcheson in 2011, its officials extended a $20 million line of credit to the North Georgia hospital.

Two years later, Hutcheson officials kicked Erlanger out. Erlanger then sued in U.S. District Court to get its money back. Hutcheson filed its own lawsuit, claiming Erlanger didn't help Hutcheson as much as it promised. Both cases are still pending, and Hutcheson since has filed for bankruptcy.

Heiskell is confident in Hutcheson's lawsuit. She thinks the hospital authority can get an excess of funds in court, then pay Walker County back.

"We'll be all right," she said of the $4.6 million the county had to pay Regions and Erlanger earlier this year. "I'm not worried about it. I know a lot of people might be. I believe we'll be able to pull this off."

But even if Hutcheson wins in court and gets money from Erlanger, plenty of people will be competing for it. According to a Dec. 15 bankruptcy filing, the hospital owes 790 creditors a combined $82 million against $32 million in assets, like the value of the land on which the hospital sits.

Records show Hutcheson is still bleeding. According to monthly operating reports, the hospital spent $570,000 more than it made from December through February. Hutcheson will file the monthly report for March in about three weeks.

At the beginning of December, according to those documents, the hospital's available balance was at $660,000. By the end of February, it was at $100,000.

If nothing else, according to bankruptcy files, Walker County will wait until eight groups with secured debts get $26 million from the hospital.

Then Walker County would jockey for position with four other government entities -- including the Georgia Department of Labor and the Internal Revenue Service -- that are waiting for $3.2 million from Hutcheson.

Those are a lot of obstacles for Walker County. But Guy, the bankruptcy analyst, said the note can serve other purposes.

For example, it will provide documentation that somebody promised Walker County $4.6 million. The note will at least make the county look better on paper.

In theory, the note also could provide a path to spread Walker County's debt.

Walker County's tax anticipation note is due to be paid at the end of the year. Since the authority has no income, it might try to take out its own loan to pay off Walker County's loan.

But that might be a tough sell. The authority would have to pay off its own loan, probably falling back on the three governments in the authority: Dade, Catoosa and Walker.

Dade County Executive Ted Rumley said officials from each local jurisdiction would have to approve the plan, and that won't happen.

"Dade County's not signing it," he said. "No way."

Contact staff writer Tyler Jett at tjett@timesfreepress.com or at 423-757-6476.

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