Massachusetts lawmakers say Cerberus got $800M profit from Steward exit

Massachusetts lawmakers say Cerberus Capital Management, a private equity firm that founded Dallas-based Steward Health Care, profited by around $800 million and "looted" the health system when it exited in 2020. 

Cerberus responded in a Feb. 26 letter to the lawmakers' request for more information regarding Steward's financial struggles. 

 "Cerberus's answers still don't provide a clear answer for how much Cerberus made off of the people of Massachusetts," Sen. Elizabeth Warren and Sen. Edward Markey said in an April 2 statement. "The information provided to Congress shows that the company may have made more." 

Here are 10 things to know:

1. The firm acquired Boston-based nonprofit health system Caritas Christi, now known as Steward Health Care, for a cash price of $246 million in 2010. More than $220 million of pension liabilities were taken on during the transaction. At least $400 million of capital investments in Steward's infrastructure, facilities, technology, and operations were also required as part of Cerberus's purchase agreements. 

2. Around $880 million was reinvested by Steward across various Steward facilities from 2010 to 2016. The investments also allowed Steward to grow from six acute care hospitals to nine, including one long-term acute care hospital; 1, 230 licensed beds to 2,000 licensed beds; two outpatient imaging sites to six sites; and one surgery center to six surgery centers.

3. From 2010 to 2016, Cerberus did not retain profits or dividends from Steward, with all cash flow being reinvested into the health system. 

4. Cerberus retained some of the $1.25 billion investment in 2016 from Medical Properties Trust, the largest hospital landlord in the U.S., for future investments, with some also distributed to Cerberus investors.

5. Cerberus sold its controlling equity interests of Steward entities to Ralph de la Torre, MD, CEO of Steward, and other Steward management members in May of 2020 for $350 million. The purchase was paid for through a convertible promissory note of $350 million. 

6. Medical Properties Trust purchased the note for around $334 million, the letter said. The money was loaned to Steward's new owners to buy out Cerberus, The Boston Globe reported April 2. 

7. Cerberus did not invest additional capital into Steward from the time of the 2016 Medical Properties Trust deal to when Cerberus transferred ownership of Steward in May 2020. "CCM refrained from taking any distributions or dividends and Steward reinvested all internally generated cash flows into its healthcare system."

8. Cerberus and its affiliated entities did not retain profits, dividends or payouts from Steward or other affiliated entities from the 2016 MPT deal to the May 2020 Steward ownership transfer. Steward reinvested all cash flows into its business during that time. Cerberus and its affiliated entities do not have any existing stake in Steward or its affiliated entities. 

10. "We do clearly know this: Cerberus worked hand-in-glove with Dr. Ralph de la Torre and Steward executives to create complicated financial schemes that put health providers in impossible positions and actively undermined the public's access to high quality health care," Ms. Warren and Mr. Markey said. "We need clear answers from the company to find out who at Cerberus received these huge profits — and claw them back from the private equity executives responsible for this mess."

Becker's has reached out to Cerberus for comment and will update this story as more information becomes available. 

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