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The mention of an auction usually conjures up visions of buyers loudly outbidding one another, while the calls of the auctioneer move along at speeds rivaling a bullet train. An auction in bankruptcy, however, is far more civilized, despite the sometimes desperate position of a company forced to sell its assets. After filing for Chapter 11 bankruptcy in February, Charter Behavioral Health Systems of Alpharetta, Ga., auctioned off many of its behavioral health facilities this May. Formerly the nation’s largest operating behavioral health facility, Charter, which continued to operate and still had to settle creditors’ claims, needed to liquidate some of its assets. “Shortly after the bankruptcy filing, [Charter] decided to close some facilities and offer others through an auction sale,” said Klett Rooney Lieber & Schorling shareholder Robert T. Harper. Harper represented buyer Universal Health Services, the King of Prussia, Pa. health-care business that placed the winning bids for 12 of the facilities. Harper, who works two days a week at Klett’s Philadelphia office and spends the balance of his time in Pittsburgh, focuses his practice on health-care mergers and acquisitions work. One night a week, he also teaches health-care finance at the University of Pittsburgh School of Law. He has represented UHS, the third largest hospital corporation in the U.S., for six years. AUCTION U.S. District Court Judge Roderick R. McKelvie approved the recommendation of New York investment bank Alvarez Marsal, which was advising Charter, that Charter’s facilities should be sold individually rather than in parcels in order to generate the highest possible price for the bankruptcy estate. “They were worth more that way,” Harper said. The auction sale was held in a series of rooms at the Hotel DuPont in Wilmington, an unusual location for an auction, Harper said. “Normally, this would be done in a courthouse. But there were so many facilities to be auctioned. Plus, they needed accommodations for the debtor’s lawyers and investment bankers,” he said. “It was really the only solution for a deal of this size.” The grueling process of selling Charter’s 20-plus facilities began at 9 a.m. and ended at about 4 a.m. the next day, the tentative schedule having gone longer than expected, Harper said. He was joined by UHS president of behavioral health Debra Osteen, UHS Senior Vice President Kirk Gorman and UHS CEO Alan Miller, who actually placed the bids. “I was there to advise them on the procedure and answer any questions,” Harper said. Bidders had to place a security deposit for each property prior to the bid, credited toward their purchase if they succeeded in the bid. The bidders were not told who else or how many others qualified to bid, Harper said. He said he could make some educated guesses but declined to name them. Ezra H. Cohen, a former U.S. Bankruptcy judge for the Northern District of Georgia, and Douglas E. Ernst of Troutman Sanders in Atlanta represented Charter. Alvarez Marsal handled the mechanics of the auction. “Most of the bidders sat in a group waiting room,” Harper said. “Alvarez representatives would come out and announce which property was currently on the block, and ask those interested to raise their hands.” Bidders then proceeded with the representative to the room where that property was being handled, he said. As a large bidder, UHS was assigned its own waiting room for the sake of convenience, Harper said. “Alvarez would come to each bidder, notify us of the current high bid, and they would ask if we wanted to continue bidding,” he said. At the conclusion of the bidding for each property it bid on, UHS was told it won. Harper said he was pleased the company was able to get every facility it wanted. Did buying at a bankruptcy auction guarantee getting facilities for a song? Harper declined to say just how good a bargain it was, but he said UHS got “a good price” on the Charter psychiatric facilities. “It helps when you have the financial wherewithal to do a deal like this,” he said, adding that it was the largest purchase he had completed out of a bankruptcy. The auction was just the first part of the UHS-Charter transaction, because Charter owned the operating assets of the facilities, but another company, Crescent Real Estate, owned the buildings. “That meant we had two sets of negotiations to complete,” he said. The deal was finalized on Aug. 18, following Judge McKelvie’s approval of the successful bids and after also getting the nod from regulatory agencies, Harper said. “If either of those elements fell through, another auction would have been scheduled, and the process would start all over again,” he said. Despite the grueling hours of the all-night auction and the subsequent negotiation with Crescent, Harper said he enjoyed the transaction. “I would absolutely do it again,” he said. “There’s an excitement in the process of an auction.” But staying alert through the 19-hour day was challenging at times. “I’m not sure how much longer we could have lasted,” he laughed. “We ordered out for Chinese food to keep us going, because if you left, you could have missed out on the property you wanted to bid on,” he said. TEAM Much of the work on the acquisition was done prior to the day at the DuPont, Harper said. “Debra [Osteen] arranged the due diligence portion to decide which facilities we wanted to bid on. She had a group of people go to Charter’s ‘dataroom’ in Georgia to review information on the company’s assets. They then made site visits to each of the facilities,” he said. Gorman structured the financial transaction of the bid. UHS General Counsel Bruce R. Gilbert, a former associate with Washington D.C.’s Weissburg & Aronson (now Foley Lardner Weissburg & Aronson), oversaw Klett’s efforts. The team at Klett included shareholder Teresa K.D. Currier of the firm’s Delaware office, who worked on the bankruptcy. Shareholder Joseph J. Palumbo resolved real estate issues, and associate Stephanie Winer Schreiber handled the bid transaction. Associate Sandra A. Brown, a nurse-attorney, was responsible for the hefty task of licensing and regulations, Harper said. “It was extensive because we were dealing with 12 facilities at once, in multiple states,” he said. “The summary chart of the licensing was 30 pages long.” The licensing requirements involved everything from DEA licensure to JCAHO accreditation, he said. Only one of the facilities UHS bought, the former Charter Fairmount, is located in Pennsylvania. The speed in getting ready for the court’s auction date was critical, Harper said. The whole process took 120 days from start to finish. “It was the cooperation of UHS, and our capable team here that made it all work,” Harper said.

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