Vencor, the first of five nursing home chains to file for bankruptcy, is trying to be the first to emerge from Chapter 11.
Only one thing stands in the Louisville, Ky.-based company's way: its former corporate sibling, Ventas, a real estate investment trust that owns most of Vencor's facilities.
"Almost everything is lined up (for Vencor). They've got almost every duck in a row, but the one duck out of line is Ventas," said Larry Gill, an attorney and bankruptcy specialist with Imperial Capital, a debt-focused brokerage and investment bank in Beverly Hills, Calif.
"I think that it's clear from the company's filing of the plan before it got approval from Ventas (that) Vencor believes that it can use the timing and the momentum of starting this process to get Ventas to come to the table."
Ventas, also based in Louisville, has said it does not support Vencor's reorganization plan as filed Sept. 29 with the U.S. Bankruptcy Court in Wilmington, Del. Despite the disagreement, Vencor is moving forward with a Dec. 6 hearing that could set the stage for the plan's approval by the court in January.
Under the plan, Ventas would cut Vencor's rent by $52 million to $174.6 million annually in return for a 10% equity stake in the reorganized Vencor. The rent would increase at 3.5% annually, although some of the added funds would be deferred.
Ventas also would be required to pay $103.6 million of the settlement Vencor reached with the U.S. government over allegations of Medicare billing fraud. Many of the allegations predate the May 1998 spinoff of Ventas from Vencor, which would pay the government $25.9 million under the reorganization plan.
Debra Cafaro, president and chief executive officer of Ventas, said getting Vencor out of Chapter 11 is the company's "key objective." Ventas, which owns 45 hospitals, 218 nursing centers and eight personal-care facilities, earns 98.5% of its revenue from its Vencor leases.
But Cafaro added that discussing Ventas' specific objections to the reorganization plan won't help the continuing negotiations.
"They need to have a financial structure that works under the Medicare (environment), and we need to have a tenant who pays the rent," Cafaro said.
Tom Shinkle, a healthcare securities analyst with Imperial Capital, agrees that Ventas badly needs Vencor to pull out of bankruptcy. Shinkle is surprised that Ventas is taking a "stubborn, almost recalcitrant" stance in the negotiations, but he expects the bank lenders, many of which made loans to both Vencor and Ventas, to use their influence to urge an agreement.
Gill said it would be difficult, but not impossible, for the Vencor plan to win the bankruptcy court's approval without Ventas signing off on it. That scenario would be what attorneys call a "cram-down case," legal jargon that Gill defines as "notwithstanding your objection, we're going to cram it down your throat." In a cram-down approval, at least one class of creditors that is suffering a loss must vote for the reorganization plan, Gill said.
No matter how the case plays out, Gill thinks the other bankrupt nursing chains should pay heed to the final settlement. Those chains include Genesis Health Ventures, Kennett Square, Pa.; Integrated Health Services, Sparks, Md.; Mariner Post-Acute Network, Atlanta; and Sun Healthcare Group, Albuquerque. All of them filed for bankruptcy after Vencor, and none has filed a reorganization plan.
Genesis, though, has reached an agreement with a major landlord that could help turn around the bankrupt nursing home company. Under the agreement, Kennett Square-based ElderTrust, a REIT that owns 23 facilities leased by Genesis, would accept $745,000 less in annual rent payments and sell two properties to Genesis for $1.25 million. The REIT also would buy three properties from Genesis' subsidiary Multicare Cos. by assuming $19.5 million in debt. The agreement must receive bankruptcy court approval.
In a separate announcement, Vencor said it reduced its losses to $26.8 million, or 38 cents per share, in the third quarter ended Sept. 30 from $42.7 million, or 61 cents per share, in the year-ago quarter. Revenue rose 5% to $717.3 million. For the nine-month period ended Sept. 30, Vencor lost $48.3 million, or 69 cents per share, compared with a loss of $107.4 million, or $1.53 per share, in the year-ago period. Revenue grew 3.8% to $2.15 billion.