McKnight's Exclusive: Here comes the Sun again
Sun Healthcare's chief executive may have saved the company from liquidation with a little bit of luck, and a healthy helping of panache.
Rick Matros has a knack for getting people to trust him, though he doesn't always like playing by corporate rules. Sporting an ivory, flowing silk shirt and khakis, spiked salt and pepper hair and gleaming white smile, you would never be able to tell the hip, relaxed 50-year-old is the chief executive of Irvine, CA-based Sun Healthcare Group Inc.: a nursing home company that was headed for liquidation just more than year ago.
A veteran with bankruptcies, Matros was coaxed into running the company by its creditors. Much to his surprise, they agreed to his whimsical request to move the company's headquarters from Albuquerque to Irvine, CA, an easy drive from his Newport Beach home. It was his "party line" request, and six to eight other companies didn't bite.
"They usually blow you off -- it doesn't make any sense, right?" he notes.
But Sun's creditors were determined to get the bankruptcy mastermind, and Matros climbed on board November 2001. He now says he took over Sun "six months too late."
"I inherited this total disaster," he says, adding he didn't know it at the time. "There was no company."
In February 2002, Sun's first quarter out of bankruptcy, the company defaulted on its bank financing. The financiers assumed $60 million in cash flow for 2001, but the company's 2001 financial statement didn't reflect $40 million in costs. Sun also took a $35 million hit on lower Medicare reimbursements.
It's a wonder Sun exists today – and that it is starting to take off so soon. With surgical precision, Matros seems to have pulled the company out of its impending gloom. He may have created the industry's most remarkable turnaround.
In just over a year, Matros divested 134 facilities, secured $56.2 million in private financing, got his "going concern" qualification lifted by the auditors and was listed on NASDAQ in March. The stock, at 11 cents in April 2003, reached a high of $14.30 in February. It had leveled off to $8 at press time.
"Rick has spent a lot of time and effort – blood sweat and tears -- and he's hung in there," says Stephen M. Monroe, a partner with Irving Levin Associates in New Canaan, CT, which studies the long-term care markets. "The company has ways to go, but Rick's done an admirable job with what he has inherited."
Though Matros still predicts a $3 million to $5 million loss for 2004, that would be less than half of the losses ($10.4 million) for 2003.
The company brought in $834 million in revenues last year, 70% from its facilities.
Results like those earned notice from knowledgeable observers.
"With new management at the helm, [Sun] commenced a restructuring that has shaped the company into a leading long-term care provider, in our view," wrote Newport-based Roth Capital Partners in an analyst report. Roth initiated coverage in May with a "strong buy." It is now the only company that covers Sun.
Relief over lawsuit
The company received more good news in June, when a Vista Superior judge threw out a lawsuit that had been weighing down the reborn chain. Sun had taken a worrisome $1.9 million hit in the first quarter in legal fees to defend 12 employees at its Escondido, CA, nursing home. The suit, which had been filed in January, charged the employees neglected to turn a resident who had bedsores, and the neglect was allegedly captured on a hidden video camera. However, prosecutors did not submit the video in front of the grand jury and the judge cited insufficient evidence.
Looking visibly relieved in his roomy, fourth-floor office, Matros said the facility would now be easier to divest to an interested party, a deal that should close by the end of the year.
Matros says that after divesting four facilities in the first quarter, he is on track to trim five more. When he's done, he says he will oversee 101 facilities: 84 skilled nursing, eight assisted living, six behavioral health and three long-term care hospitals.
The firm is now 70% concentrated on the East Coast, whereas 50% of the old company was in California and Massachusetts. Ma