medium · Asset-Backed Securities asset-nuances
A Hospital System issues a $100 million healthcare receivables ABS facility. The 'Advance Rate' is set at 80% of Net Realizable Value (NRV).
If the hospital files for bankruptcy, what is the primary risk to the ABS investors despite the 'True Sale' structure?
- The Medicare and Medicaid programs will automatically terminate and cancel all outstanding receivables the moment the provider files for bankruptcy.
- The hospital's patients and their private insurers will simply stop paying outstanding medical bills once the hospital enters bankruptcy or financial distress.
- The 'Automatic Stay' in bankruptcy may temporarily delay the transfer of collections to the trust while the court reviews the true-sale characterization.
- The Advance Rate must be immediately increased to 100% of Net Realizable Value in order to provide the hospital with emergency operating capital during the case.
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