BETHESDA, Md. — After several months of negotiations, massive seniors housing operator HCR ManorCare and its landlord Quality Care Properties (NYSE: QCP) have reached an agreement over HCR’s more than $385 million in unpaid rent.
Under the terms of the agreement, HCR’s operations business will file for Chapter 11 bankruptcy and transition the company and its leadership to Bethesda-based QCP. HCR’s business includes skilled nursing, assisted living, hospice and home care.
“The transaction is expected to recapitalize HCR ManorCare and provide stability and flexibility to better react to today’s rapidly changing post-acute care industry,” according to a press release from QCP. “Under QCP’s ownership and with new leadership, HCR ManorCare will continue to focus on providing superior patient care in this vital sector of healthcare.”
HCR ManorCare’s operating subsidiaries will not file for Chapter 11 and the parent company’s Chapter 11 filing will have no impact on patient care or the subsidiaries’ operations, according the QCP. All HCR ManorCare employees, creditors, vendors and suppliers, aside from QCP, “are expected to be unimpaired by the transaction and paid in the ordinary course when due.”
The transaction is subject to bankruptcy court approval of the prepackaged plan of reorganization and customary closing conditions, including regulatory approval. Bankruptcy court approval is expected during the second quarter of 2018, with the completion of the transaction expected during the third quarter.
Guy Sansone, managing director and chairman of the Healthcare Industry Group at global professional services firm Alvarez & Marsal, and Laura Linynsky, QCP’s senior vice president and a former COO of Sunrise Senior Living Inc., will serve as consultants for QCP during the transition. Following the completion of the transaction, Sansone will become CEO of HCR ManorCare and Linynsky will serve as CFO.
“This agreement facilitates a consensual resolution that provides stability and flexibility for the business,” says Mark Ordan, QCP’s CEO. “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,” continues Ordan. “Under Guy and Laura’s leadership, HCR ManorCare will continue to support the excellent employees providing long-term care, hospice and rehabilitation services, and corporate services to enhance patient care and drive referrals.”
QCP itself is a spin-off of healthcare REIT HCP (NYSE: HCP), which created the company specifically to remove HCR ManorCare’s 320 properties from its portfolio. QCP and HCR have been in negotiations for months regarding hundreds of millions in unpaid rent.
Following the transaction, HCR ManorCare will retain its name and branding, but as a wholly owned subsidiary of QCP. As part of the transaction, QCP will give up its REIT designation, as it will now both own and operate its properties.
Sullivan & Cromwell LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP are serving as QCP’s legal counsel. Lazard (LGI) and Houlihan Lokey Capital Inc. are serving as financial advisors and Alvarez & Marsal is serving as an advisor.
Latham & Watkins and Sidley Austin are serving as HCR ManorCare’s legal counsel. AP Services LLC is serving as restructuring advisor and Moelis & Company is serving as financial advisor.