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Quality Care Properties seeks financing to acquire HCR ManorCare

Quality Care Properties Inc. is seeking up to $500 million in financing commitments from creditors of HCR ManorCare to fund an acquisition of the troubled skilled nursing operator.

ManorCare, which is majority owned by Carlyle Group LP, fell $17 million short on a June payment it owed to Quality Care, its landlord, after other lenders demanded payment sooner than expected. Quality Care owns a minority stake in the operator and said after the default that the two sides were discussing an out-of-court restructuring in which it would take full ownership of ManorCare.

In a June 8 SEC filing, Quality Care said it is in continuing talks with ManorCare management, some of its lenders, and Carlyle. In a presentation for lenders, the real estate investment trust said it is seeking a financing commitment from the lenders as soon as possible, "and in any event by June 15."

The company said interested lenders could learn more, confidentially, about detailed acquisition finance terms and conditions and about discussions between Quality Care and ManorCare. The company said it "proposes to work with lender advisors to make progress toward a deal they can recommend."

ManorCare's future as an operator is critical to Quality Care's viability: The REIT was formed, in a spinoff from HCP Inc., largely as a vehicle for renegotiating ManorCare's leases. Leaving aside Quality Care's equity stake in the operator — which it values at zero — ManorCare's master lease accounted for 94% of Quality Care's total revenue in the 2016 fiscal year.

The REIT also has some leverage in negotiations with the company and its creditors: ManorCare has guaranteed all rental obligations to Quality Care, including deferred rent obligations and unpaid rent of roughly $300 million, and future rent of roughly $8 billion, Quality Care said in the presentation.

In the proposed negotiations with creditors, Quality Care said it is seeking up to $400 million of term debt and $100 million of other support for an acquisition, to refinance current debt and provide working capital. Participating lenders would receive cash commitment fees at the signing of a merger or acquisition, or a financing commitment.

All existing ManorCare lenders are "welcome to participate," the REIT said, with no minimum participation required.