CREDITORS SUBMIT PLAN TO HOSPITAL TERMS AT ISSUE ON DEBTS.

Byline: Naush Boghossian Staff Writer

SANTA CLARITA - A committee of Henry Mayo Newhall Memorial Hospital's creditors, owed $10 million, submitted its own bankruptcy reorganization plan Monday, seeking a larger down payment and higher interest rate than hospital officials proposed.

``The committee is confident it's a feasible plan, and we feel these are reasonable terms. It's similar in structure to the debtors' plan, but it gives general unsecured creditors far superior treatment,'' said Daniel Reiss, the attorney representing the creditors. ``We're hoping to avoid having an expensive plan-confirmation battle.''

The committee proposes that the hospital pay a lump sum of $5.5 million to creditors on the plan's effective date and a second payment of $2.5 million 180 days later.

The committee also proposed a 9 percent interest rate on remaining claims over a maximum of 3 1/2 years and called for the hospital's assets to secure those claims.

``We hope that there will ultimately be a consensual plan along the lines of the committee plan,'' Reiss said.

Both sides have been at an impasse on a repayment schedule. The committee rejected several plans hospital officials submitted to U.S. Bankruptcy Court last year, including a December proposal to repay creditors 100 percent over four years.

The creditors were not satisfied with the proposed $4 million down payment and the 7 1/2 percent interest rate.

Hospital officials said they were encouraged by the committee's proposal and its similarity to their own plan, but added it was still not feasible.

``This is the first proposal that has shown movement in their position. That's a very positive step,'' said Roger E. Seaver, the hospital's president and chief executive officer. ``But the problem with that plan is we could not go forward with other needed investments on behalf of the community. We can't do that and pay creditors in the same period.''

As the only hospital and emergency room in the area, Newhall Memorial requires continuous investments for expansion and improvements, Seaver said.

``If we only had to pay the creditors, their plan might be viable,'' Seaver said. ``But we have a responsibility to the community, and when you balance that responsibility with that to the creditors, it requires a smaller amount up front and a longer period of time to complete the payments to the creditors.''

Planned emergency room construction and addition of needed beds would not be affordable if the creditors' plan were adopted, Seaver said.

``I believe when they understand those trade-offs - and that all we're arguing about is the time frame and the interest rate - we'll probably be able to come to a consensual plan that's beneficial for everybody,'' Seaver said. ``In any negotiation, you have to understand both parties' needs, and when we do that, we'll have a consensual plan.''

The U.S. Bankruptcy Court judge, who said he believed that the negotiations were deadlocked and was concerned about the escalating costs of the case, paved the way in September for the creditors committee to submit a competing plan to reorganize the Valencia hospital.

The move leveled the playing field for negotiations between the hospital and the committee, and it opened the door to the possible sale of the hospital.

The hospital declared bankruptcy more than one year ago. Debts had mounted because hospital officials were forced to speed up the schedule for costly seismic retrofitting, in the wake of the 1994 Northridge Earthquake, and because of some poorly engineered contracts with health insurance companies.