UPDATE, JAN. 13, 7:43 a.m. ET: Prospect Medical filed for Chapter 11 bankruptcy Saturday. It will continue operating as it restructures. 

Facing financial and legal issues, another tenant of hospital REIT Medical Properties Trust is reportedly looking to restructure.

California-based Prospect Medical Holdings, one of the largest tenants in MPT's portfolio, is exploring options for restructuring and is working with Chicago-based law firm Sidley Austin and consultant Alvarez & Marsal, The Wall Street Journal reported.

Prospect and MPT didn't respond to requests for comment from Bisnow.

The talks of restructuring come as the healthcare tenant struggles to pay rent and faces delays in the sale of several East Coast properties.

In the third quarter, MPT reported a net loss of $801M in part due to a $134M reduction in value of its investment in Prospect. In the same week, Prospect announced that it had entered into an agreement to sell a series of assets, including medical groups in California, Texas, Arizona and Rhode Island to Astrana Health for $745M.

That deal would give MPT roughly $200M in proceeds in the first half of 2025 and another $50M by 2027, the REIT said in November.

Prospect has been in ongoing talks to sell a portfolio of Connecticut hospitals to Yale New Haven Health for $435M since 2022. Yale tried to back out of the deal and filed a lawsuit in May against the California healthcare system, arguing it doesn't have to abide by the original sales agreement because of the declining value of the three properties.

The operator also attempted to exit markets in Pennsylvania and Rhode Island after being sued by their respective attorneys general over hospital conditions.

MPT began working with Prospect in 2019 after the operator sold 16 of its properties to the REIT in a $1.5B sales-leaseback deal. Prospect operates 16 hospitals in California, Pennsylvania, Rhode Island and Connecticut, and operates 166 outpatient clinics and centers.

MPT tenant Steward Health Care faced similar woes last year. It was first reported to be working with restructuring specialists in January after struggling to pay its bills, and that led to it filing for Chapter 11 bankruptcy in May, followed by hospital closures and its eventual exit from Massachusetts.