Skilled nursing and assisted living operator HCR ManorCare Inc. will file for voluntary Chapter 11 bankruptcy in the coming days and transfer ownership of its business to its landlord, Quality Care Properties Inc., subject to court approval.
After the transaction closes, Quality Care's claims against its primary tenant, including deferred and unpaid rent, will be released for 100% equity ownership of HCR, which will become a wholly owned subsidiary of Quality Care. Following the acquisition, Quality Care expects to no longer qualify as a real estate investment trust.
Quality Care's shares rose by more than 25% in early trading following the news.
In a release, Quality Care said that no longer attempting to qualify as a REIT will allow it to own the primary operator of its skilled nursing and assisted living/memory care facilities, as well as the operator of HCR's hospice business, Heartland Hospice and Home Health Care.
HCR, which currently is majority owned by Carlyle Group LP, made a $23.5 million rent payment to Quality Care with the signing of the agreement, representing rent payments of $14 million and $9.5 million, which were due Jan. 25 and Feb. 10, respectively.
Quality Care filed a legal action in August 2017 for a court-appointed receiver to operate its properties leased to HCR after HCR defaulted on lease payments.
HCR's operating subsidiaries will not file for Chapter 11, and the parent company's filing will not affect ongoing operations.
Under a plan sponsor agreement, existing employees, creditors, vendors and suppliers, except for Quality Care, will not be impacted by the plan of reorganization, which HCR expects to be approved by a bankruptcy court in the second quarter and completed in the third.
Effective immediately, Guy Sansone, managing director and chairman of the healthcare industry group at professional services firm Alvarez & Marsal, and Quality Care Senior Vice President Laura Linynsky will serve on behalf of Quality Care as consultants in order to facilitate the transition of leadership and ownership. Sansone will become CEO of HCR and Linynsky will become its interim CFO after the transaction closes.
HCR's controlling stockholders have signed a restructuring support agreement backing the transaction.
Sullivan & Cromwell LLP and Paul Weiss Rifkind Wharton & Garrison LLP are serving as Quality Care's legal counsel, Lazard and Houlihan Lokey Capital Inc. are serving as financial advisers and Alvarez & Marsal is serving as an adviser.
Latham & Watkins and Sidley Austin are serving as HCR ManorCare's legal counsel, AP Services LLC is serving as restructuring adviser and Moelis & Co. is serving as financial adviser.
Quality Care also said it is unable to file its annual report for 2017 on time given the ongoing situation with HCR. It plans to file the report by March 16.
Quality Care was formed in a spinoff that was largely designed to rid HCP Inc. of its skilled nursing portfolio leased to HCR ManorCare.
