Proton facilities default on payments

The new year rang in fresh signs of distress at a pair of long-struggling cancer treatment centers in Maryland and Arkansas financed with bonds through Wisconsin's conduit issuer the Public Finance Authority.

The Maryland Proton Treatment Center defaulted on an $8.7 million interest payment due Jan. 1 on $267 million of unrated municipal bonds, according to a posting on EMMA. The center has faced strains almost since it first floated the debt in 2018, and has tapped debt service funds to make previous payments. No principal payments will be made on the subordinate and junior bonds, the notice said.

The Proton International Arkansas, LLC reported on EMMA that it would miss an interest payment on subordinate bonds and would be forced to shift money from its liquidity support fund to the debt service fund to make the Jan. 1 interest payment on the senior bonds.

The bond trustee in both cases is UMB Bank NA, a trustee that bondholders often bring in when an obligor faces stress.

It's the latest sign of distress among proton treatment centers financed with speculative-grade municipal bonds. Proton therapy more precisely targets radiation to tumors, with less damage to surrounding tissues than other radiation therapies. The treatment is costly, not always covered by insurance, and has not gained widespread acceptance. The centers rely on patient revenue for bond payments and many have struggled to build volume, especially in the wake of the COVID-19 pandemic.

Limited insurance coverage hampers the sector, said Steve Hicks, CEO of Provident Resources Group, Inc., which owns a $416 million Georgia proton center that has missed bond payments.

Provident acquired the already-distressed Georgia ProtonCare Center in 2016.

"With the introduction of pencil beam technology in the late 1990s, proton therapy remains the best #1 modality of treating cancer in children," Hicks said in an email. The number of cancers eligible for proton therapy has "significantly increased," he said, adding that the GPCC treats approximately 100 patients a day.

"Today, even with over 40 proton therapy centers operating in the U.S., we are still grossly underserved. When I was first introduced to proton therapy in 2005, there were only four in the U.S. Insurance carrier guidelines continue to hinder the expansion of proton therapy," Hicks said.

Many of the headwinds facing the centers are outside of their control, said Andy Phillips, general counsel for Wisconsin's PFA, through which many of the facilities accessed the muni market.

"Thanks in large part to the Covid pandemic and other outside economic pressures, there have been negative impacts on the bonds supporting these cancer treatment facilities," Phillips said in an email. "PFA will continue to work in an ongoing fashion with bondholders and investors to ensure that these projects continue to provide an ongoing public benefit and critical care for patients in need."

The Proton International Arkansas as well as New Jersey's Procure Proton Therapy Center ? also financed by the PFA ? both marked first-time defaults in the third quarter, according to Moody's Investors Service (MCO). The Maryland center has been in default since 2022, according to Moody's.

A Delray Beach, Florida center, Proton International-Delray, LLC., also financed by the PFA, posted its latest notice of default in November for failure to achieve debt service coverage ratios and days cash on hand.

In 2020, a trio of proton centers in Tennessee and Florida filed for bankruptcy, affecting more than $360 million of bonds. Provision Cares Proton Therapy Centers in Nashville and Knoxville, Tennessee., and a related center that was being built in Orlando, Florida, filed for Chapter 11 in the U.S. Bankruptcy Court in Nashville. They cited low patient volume, the covid pandemic and cyberattacks as driving the insolvency. The case was closed in September 2023 with bondholders receiving roughly 58.1 million, according to court filings.