A showdown is brewing between Toledo-based HCR ManorCare and the company that owns the nursing homes and other facilities that the local firm manages.
ManorCare, based in downtown Toledo and has about 1,700 employees in the area, is financially struggling and faces the possibility of going out of business, entering bankruptcy, or a takeover.
VIDEO: Jon Chavez discusses HCR ManorCare financial debacle
The real estate investment trust Quality Care Properties Inc., of Bethesda, Md., this month filed a notice of impending default because ManorCare owed it $39.5 million in rent payments in July but paid only $8.2 million. Quality Care gave the nursing-home operator until last Friday to pay its June and July rent in full — about $79.6 million — or face the consequences.
The consequences spelled out in a U.S. Securities and Exchange Commission filing included a declaration of default, termination of the master lease between the two firms that dates back to 2011, a requirement that ManorCare immediately pay future rent totaling $265 million, and the possibility that Quality Care could put the local firm into receivership or pursue “other remedies.”
The other remedies could include a forced bankruptcy. An effort to negotiate an “out-of-court restructuring” or acquisition between Quality Care, ManorCare, and its owners, management, and lenders did not result in an agreement, Quality Care said in an SEC filing this month.
That could deal a huge blow to ManorCare, a one-time independent Toledo firm that runs 500 skilled nursing and rehabilitation centers, memory centers, and assisted-living facilities nationwide under names such as Heartland, ManorCare Health Services, and Arden Courts. It does not, however, own the buildings; Quality Care owns them.
As of Tuesday, Quality Care gave no indications in SEC filings or other actions whether ManorCare paid the owed rent.
Quality Care did not respond to calls seeking comment and a ManorCare spokesman declined to comment on Tuesday. A spokesmen for ManorCare’s parent firm Carlyle Group, a Washington-based asset management firm that bought the Toledo company in 2007, also declined to comment on Tuesday.
Health-care industry consultant Steve Monroe, a partner at the Connecticut health-care research firm Irving Levin Associates Inc., is not involved in the ManorCare situation, but he outlined possible outcomes.
ManorCare “probably could make the payment, but do they want to?” Mr. Monroe said. “I don’t know how much of this is negotiating strategy and gamesmanship on the part of HCR ManorCare, but it doesn’t win you any points by not paying your rent.”
Quality Care could force the Toledo company into default, he said, but if so, then who operates the nursing homes and other facilities? Mr. Monroe asked. If it’s Quality Care, that firm could lose its status as a real estate investment trust, he added.
And there would be potential liabilities that could leave Quality Care on the hook for millions of dollars. In 2015, the U.S. Department of Justice began an investigation into ManorCare after three whistle-blowers said the Toledo company was illicitly collecting millions in Medicare payments by billing for treatments that were not medically justified. The Justice Department sued ManorCare, but initially provided no specific dollar amount for the alleged improper compensation.
ManorCare vigorously has denied the claims, but the investigation has continued. Mr. Monroe said Quality Care likely is wary of the ongoing investigation.
Additionally, the New York Post reported last month that ManorCare CEO Paul Ormond is demanding $100 million in deferred compensation that the Carlyle Group agreed to pay him in its $6.3 billion purchase of ManorCare.
If Quality Care takes over ManorCare through a receivership or other type of acquisition, Quality Care may be liable for that payment to Mr. Ormond, Mr. Monroe said.
If ManorCare goes into bankruptcy, however, Mr. Ormond might be reclassified as a creditor and have his $100 million compensation claim jeopardized, Mr. Monroe said.
“So there’s a lot of interesting gamesmanship, that if you do this, this happens, and if you do that, something else happens,” Mr. Monroe said.
Contact Jon Chavez at jchavez@theblade.com or 419-724-6128.
First Published July 19, 2017, 4:00 a.m.
