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May 21 (Bloomberg) -- KidsPeace Corp., the owner of a nonprofit psychiatric hospital for teenagers in Pennsylvania, filed for bankruptcy blaming government spending cuts.

The company will try to use bankruptcy to reduce its bond debt to $24 million from $51.3 million and to trim pension obligations that may exceed $100 million, according to an affidavit filed today by Chief Executive Officer William R. Isemann.

KidsPeace owes creditors more than $100 million and has assets valued at less than $50 million, according to its Chapter 11 petition in U.S. Bankruptcy Court in Reading, Pennsylvania. The company was financially sound until 2008, Isemann said in court papers.

“In more recent years, however, the debtors, like many other organizations in their field, have faced increased challenges,” he said.

The U.S. federal and state Medicaid program, which provides health insurance to poor children, cut reimbursement rates. The program is the company’s biggest source of revenue. States that send troubled teens to the hospital and other facilities also cut back, the company said in court papers.

Orphanage Roots

KidsPeace, based in Orefield, Pennsylvania, traces its roots to an orphanage founded in 1882. The company and its eight units have more than 750 employees, including nurses, doctors and teachers. The 96-bed hospital provides inpatient psychiatric care to children and adults 21 and younger.

The company’s juvenile-justice program in Minnesota and residential treatment centers in Pennsylvania, Maine and Georgia serve children with a variety of psychiatric disorders.

Revenue was $119.9 million and expenses totaled $124.5 million last year as KidsPeace posted a loss of $3.1 million, according to court papers.

The case is In Re KidsPeace Corp., 13-14508, U.S. Bankruptcy Court, Eastern District of Pennsylvania (Reading).

To contact the reporter on this story: Steven Church in Wilmington, Delaware at

To contact the editor responsible for this story: Stephen Farr at

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