HCR ManorCare officials filed for bankruptcy Sunday, paving the way for a company-saving purchase by Quality Care Properties.
For much of the last year, ManorCare has struggled to make lease payments to QCP, highlighting the skilled nursing provider’s financial challenges and raising questions about its long-term viability. It was the nation’s largest SNF operator during the last decade, though by 2016 it had dropped to No. 2.
QCP is expected to play an immediate role in the daily operations of ManorCare’s SNFs, assisted living, hospice and homecare businesses immediately — and complete its purchase of all those assets by the third quarter of 2018.
“We don’t see this affecting patient care, employees or suppliers,” ManorCare spokeswoman Julie Beckert told McKnight’s on Friday. “HCR ManorCare believes this agreement should ensure the necessary financial stability going forward to protect our employees, patients and partners and keep our three profitable lines of business viable going forward.”
Neither ManorCare nor QCP would comment further on details of the plan Friday, which was outlined in a press release meant to pre-empt the bankruptcy filing — which eventually did come Sunday in the U.S. Bankruptcy Court in the District of Delaware.
The deal provides a clear path forward for ManorCare, whose financial problems have been tied to declining public payments, escalating insurance rates, litigation and aging properties. Several analysts had predicted the firm might go into receivership.
Under the agreement, QCP said ManorCare’s operating subsidiaries would not file for Chapter 11, and the parent company’s Chapter 11 filing would have no impact on patient care or the subsidiaries’ operations.
ManorCare seemed to confirm that in an email obtained by McKnight’s and purporting to address employees, though ManorCare would not confirm or deny the memo’s authenticity.
“Our reorganization process will not disrupt your work, change your vendors or otherwise distract you from your vital mission,” said the email, attributed to ManorCare president and CEO Steve Cavanaugh. He took on that roll in September, a month after QCP filed a receivership complaint over $385 million in unpaid rent and other debts.
“Your paychecks, vacation time and benefits will not be disrupted,” the memo noted. “While your facilities staff and management will not change because of this process, there will be changes at headquarters in Toledo which you can read about in the attached file.”
The transaction is still subject to bankruptcy court and regulatory approval.
Effective immediately, QCP is bringing in 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 Chief Operating Officer of Sunrise Senior Living, to serve as consultants and “facilitate a smooth transition of leadership and ownership.”
Sansone is expected to assume the role of HCR ManorCare Chief Executive Officer, while Linynsky will become the interim Chief Financial Officer.
QCP will hold an investor event in the next 60 days to provide an update on its strategy and financial picture, officials said. The controlling stockholders of HCR ManorCare have signed a restructuring support agreement supporting the transaction.
Concurrent with the agreement, HCR ManorCare made a rent payment to QCP of $23.5 million, which represents payments due on January 25 and February 10. QCP expects to receive rent payments from HCR ManorCare during the Chapter 11 period.
QCP is one of the nation’s largest actively managed real estate companies focused on post-acute/skilled nursing and memory care/assisted living properties. It will lose its status as a REIT, however, in order to operate its ManorCare properties.
“This agreement facilitates a consensual resolution that provides stability and flexibility for the business,” said Mark Ordan, QCP’s Chief Executive Officer. “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.”
ManorCare has more than 500 skilled nursing and rehabilitation centers, memory care communities, assisted living facilities, outpatient rehabilitation clinics, and hospice and home health care agencies in the U.S.