HCR ManorCare enters bankruptcy

May 2018 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

May 2018 Issue

HCR ManorCare, the second largest nursing home operator in the US, has filed for Chapter 11 bankruptcy protection, citing debts of $7.1bn. The filing was part of a pre-packaged agreement which will see ownership transferred to the company’s landlord, Quality Care Properties Inc (QCP). QCP will lose its REIT status in order to complete the deal.

ManorCare, which employs more than 50,000 people across the US in around 500 assisted living, skilled nursing and home-health and hospice centres under the ManorCare, Arden Court and Heartland brand names, has announced that its subsidiary companies will not be filing for bankruptcy and will continue to operate as normal. The company also confirmed that the filing will have no effect on patient care.

Under the terms of the agreement between ManorCare and QCP, ManorCare has paid $23.5m in outstanding rent, which represents the $14m and $9.5m payments previously due on 25 January and 10 February respectively. The company will also continue to pay rent during the Chapter 11 period. The transaction is subject to bankruptcy court approval, which is expected during the second quarter of 2018. The transaction is expected to complete during the third quarter.

ManorCare has been struggling financially for some time. The company’s revenues slipped from $4.1bn in 2015 to $3.7bn in 2017. Furthermore, it has not been profitable since at least 2014, with 2017 pre-tax losses totalling $268m. The company has also been embroiled in a long-running rent related dispute with QCP. ManorCare signed a lease with QCP for 289 properties in 2011 and since 2012 the company’s revenue stream has failed to cover its monthly rental obligations. ManorCare owes $446m in rent which has been accruing at a minimum of $39.5m every month. The company fell into arrears in 2017 and eventually defaulted on its lease.

John R. Castellano, HCR ManorCare’s chief restructuring officer, said, “We have invested a significant amount of time and effort in developing this proposed solution for all constituents involved. We believe that this agreement is a positive outcome for all of HCR ManorCare’s stakeholders. Under our proposed plan, HCR ManorCare employees and creditors, aside from QCP, will not be impaired while we transition the ownership of the HCR ManorCare parent company to QCP. This represents an important step forward to strengthen the Company’s financial position and create value.”

Steven M. Cavanaugh, HCR ManorCare’s president and chief executive, said, “We have worked with QCP to reach an agreement that provides stability for our employees, residents and patients. I am proud of the hard work and dedication that HCR ManorCare employees have continued to demonstrate in delivering outstanding care during difficult times. We will work tirelessly through the transition to ensure that the company continues to deliver the same level of outstanding care.”

Guy Sansone, managing director and chairman of the healthcare industry group at Alvarez & Marsal, and Laura Linynsky, QCP’s senior vice president and a former COO of Sunrise Senior Living, will begin working in a consultant role to oversee the transition of ownership. Upon completion of the transaction, Mr Sansone is expected to serve as ManorCare’s CEO and Ms Linynsky is expected to become interim CFO.

“This agreement facilitates a consensual resolution that provides stability and flexibility for the business,” said Mark Ordan, QCP’s chief executive. “We see this as the best available opportunity to improve a challenging situation. We considered every possible option and determined that entering this agreement to take direct ownership of our tenant best positions QCP to reposition the business to realize the potential of its properties for QCP shareholders. Under Guy and Laura’s leadership, HCR ManorCare will continue to support the excellent employees providing long-term care, hospice and rehabilitation services, and corporate services to enhance patient care and drive referrals”.

Richard Summerfield