Judge Basil H. Lorch III of the U.S. Bankruptcy Court for the Southern District of Indiana in New Albany is set on Feb. 14 to consider the disclosure statement outlining the plan.

The plan requires Clark County, Ind., to participate in a new lease contract for the land under the Clarksville, Ind., hospital. The Clark County council weighed the financial impact on the county and its taxpayers and on Jan. 10 unanimously voted to support the plan and enter the lease agreement.

The plan "has certain risk mitigation terms and conditions that still need to be agreed upon, formalized and underwritten," wrote John Gilkey, council president, in a Jan. 13 letter to the court. Clarksville "clearly recognizes that the hospital [is] a vital part of the economic stability of [the town] and essential to the health, maintenance and general welfare of our community. It provides many positives to the area and would be a tragedy should it be forced to close its doors."

Kentuckiana then filed an amended plan and disclosure statement on Monday, Jan. 16, incorporating mentions of the county support.

Under the plan, the real estate under the hospital, which is owned by a bankrupt affiliate of Kentuckiana, KMC Real Estate Investors LLC, would be transferred to a single-purpose entity owned by KMCREI and Argenta Group LLC, which would provide a $37 million exit loan.

That new entity would lease the real estate to Clark County, which would sublease the land to Kentuckiana on similar terms.

The obligations under the lease would be guaranteed by Medical Asset Investors of Kentuckiana LLC, which would receive 51% of the ownership in Kentuckiana. MAIK, whose members include Mike Morley, Ed Ballard and Linda Julian, agreed to guarantee the lease whether or not the county council agreed to the plan. MAIK's owners support another hospital in Phoenix under a similar agreement and said in documents that their resources and experience would help Kentuckiana's operations.

The rest of Kentuckiana would be owned by KI II LLC, a new entity composed of the same physicians that control Kentuckiana Investors LLC, which already owns 49% of the debtor. KI II would provide a $2 million investment upon confirmation of the plan.

Cardiovascular Hospitals of America LLC currently holds 49% of Kentuckiana's equity and Larry and Leslie Robertson hold 2%. Both would lose their equity stakes under the plan.

Kentuckiana said it would use $16 million of the exit loan from Argenta to repay RL BB Financial LLC, which holds liens on KMCREI's real estate.

RLBB was owed $22 million as of April 1 from a June 21, 2007, loan. Branch Banking and Trust Co. had originally made a $21.5 million loan to KMCREI and assigned it to RLBB on Sept. 30, 2010. RLBB said KMCREI committed various defaults, including failing to make payments on the loan, leading RLBB to file a complaint in the Superior Court for Clark County on Feb. 23 requesting a receiver pending a foreclosure action. The foreclosure action was stayed when KMCREI filed its bankruptcy petition on April 1.

Kentuckiana would use an additional $5 million of the exit loan to fund construction and the acquisition of new equipment for the hospital.

The new plan does not change the treatment of claims from the previous version.

Under the plan, $3.5 million in administrative claims would be paid in full on the plan's effective date.

Secured creditor Hall Robb LLC, owed $5.1 million, would receive $3.4 million in cash on the effective date.

Cardinal Health, owed $679,170, would receive $220,000 in cash for the secured portion of its claim.

Steris Corp., owed $578,610, would receive $240,000 in cash for the secured portion if its claim.

If secured creditor Leasing Group Pool II LLC, owed $2.8 million, accepted the plan, it would receive $250,000 in cash on the effective date and be paid in full through monthly installments over 84 months with 6% interest. Otherwise, it would not receive any cash on the effective date but would still be paid in full with 6% interest over 84 months.

Taft Stettinius & Hollister LLP, owed $110,613, would be allowed only a $52,632 unsecured claim.

IPFS Corp., owed $103,269 for a claim secured by Kentuckiana's insurance premiums, would be repaid according to its agreement with the debtor.

Secured creditor Med One Capital Funding LLC, owed $1.5 million, would receive $125,000 in cash on the effective date if it voted to accept the plan. Whether or not it accepted the plan, its claim would be paid in full over 84 months with 6% interest.

General unsecured creditors, owed $6 million, would receive a pro rata share of available cash 60 days after the effective date. Kentuckiana expected $500,000 to be available for unsecured creditors.

KMCREI filed its own reorganization plan on Wednesday. RLBB is KMCREI's only secured creditor and would receive money from the Argenta loan. RLBB would also be allowed a $6 million unsecured claim, which would be repaid with 3% interest over 10 years.

Kentuckiana operates a 36-bed acute-care hospital in Clarksville, offering cardiovascular care, oncology, urology and internal medicine. The hospital employs roughly 200 workers. Before filing for Chapter 11 on Sept. 19, 2010, Kentuckiana had been working on building a new 12-bed wing and emergency room.

David M. Cantor and Neil C. Bordy of Seiller Waterman LLC are debtor counsel.