Although Hawaii Medical Center's bankruptcy case may now be one step closer to reorganization, there's much contention and confusion over collateral for its former owner.

As expected, financial details in three reorganization plans for Hawaii Medical Center's bankruptcy case were deemed feasible at yesterday's hearing in U.S. Bankruptcy Court.

However, much of the hearing was spent on how much collateral belongs to former owner St. Francis Healthcare System of Hawaii.

About $8.5 million has passed through a HMC bank account, according to court documents. The center concedes about $2 million of it is St. Francis collateral.

St. Francis claims all of the money was collateral, which it alleges was “;improperly”; used.

U.S. Bankruptcy Court Judge Robert Faris said neither party has shown any evidence supporting its claim. With the amount uncertain, a hearing was scheduled for Feb. 25 to determine the scope of St. Francis' collateral.

“;We'll continue to investigate the claims of (St. Francis' attorney Bruce) Bennett, we'll file the appropriate response and then let the judge decide,”; said HMC's Ohio-based attorney, Paul Linehan.

Faris placed a lien on HMC assets for St. Francis until the matter is resolved. He said he didn't want to make a decision until the issue has been cleared up.

“;There are a lot of unpalatable choices to make here,”; Faris said. “;If I have to choose one, I will, but only with a complete record.”;

As a “;good faith”; measure, Salim Hasham, HMC's chief operating and restructuring officer, said the company already had frozen the account, which holds more than $2 million. Hasham said the money was needed for operating the Ewa Beach and Liliha area hospitals.

“;Any cash that we spend always goes into improvement of operation, staffing, salaries, capital expenditures,”; Hasham said. “;It is only enhancing the collateral of St. Francis.”;

Los Angeles-based Bennett said his client “;very badly”; wants the hospitals to remain open to serve the public and maintain operations. But he argues the situation only points to how St. Francis' reorganization plan is the most feasible.

“;They don't have enough value to pay the creditors,”; Bennett said. “;If the debtor can't replenish collateral, there can't be a reorganization plan.”;

The financial details of St. Francis' reorganization plan propose that each claim holder would receive a promissory note with a face amount equal to what is owed. Each creditor would receive semiannual payments of interest at 2 percent annually. The promissory notes would mature in 10 years. St. Francis also seeks to regain ownership of the properties.

Hawaii Medical Center is proposing to pay nonpriority creditors up to 70 percent of their allowed claims. The money would be paid in monthly installments with interest over seven years. But monthly payments would only be made if HMC is on schedule to pay priority creditors like St. Francis.

Those payments may be lower if HMC is unable to cut the secured debt to St. Francis down to $42 million by either selling the Liliha facility, refinancing it or challenging St. Francis' claim in court.

Under the plan proposed by the unsecured creditors committee, each nonpriority claim would eventually be paid in full, with an initial cash payment of $1.2 million followed by quarterly payments over nine years with interest.

With all three deemed feasible, the plans will go out to creditors for a vote. Faris scheduled a confirmation hearing for reorganization on April 6.

That hearing is expected to last at least three days, since each party said yesterday it favored its plan over the two others.