(Bloomberg) -- HCR ManorCare Inc., the nursing-home operator that filed for bankruptcy on Sunday, will pay its former chief executive $116.6 million to settle a pay dispute that had roiled the company's reorganization efforts.
Paul Ormond was a key executive when ManorCare was bought out by private equity giant Carlyle Group LP in 2007, and later when his company ran into financial trouble. The accord gives Ormond substantially all of what he sought. Details of the pay package were filed in bankruptcy court in Wilmington, Delaware, along with ManorCare's Chapter 11 petition.
ManorCare had been locked in a dispute over back rent with landlord Quality Care Properties Inc. as profit was eroded by changes in Medicare programs and low occupancy. Quality Care, which owns nearly all the nursing home properties run by ManorCare, sued last year and demanded that a receiver be appointed to run the ManorCare properties. The suit accused Ormond and other top executives of disrupting restructuring talks with their demands for more than $120 million in deferred compensation.
Ormond couldn't be immediately reached for comment. A spokesman for QCP declined to comment. HCR ManorCare didn't directly answer questions about Ormond, instead saying the bankruptcy deal would benefit the company.
“HCR ManorCare believes this agreement should ensure the necessary financial stability going forward to protect our employees, patients and partners and keep our three profitable lines of business viable going forward,” ManorCare spokesman Erick Mullen said in an email.
Back Together
The fate of the two companies has been tightly linked because nearly all of Quality Care's revenue comes from rent payments by Toledo, Ohio-based ManorCare.
Under its proposed bankruptcy plan, Quality Care will take over ManorCare to resolve the dispute over $455.8 million in unpaid and deferred rent. ManorCare's operating units were not included in the bankruptcy, and the companies said there won't be any impact on patients at ManorCare, which has about 30,000 residents in about 300 skilled-nursing and assisted-living facilities leased from Quality Care, based in Bethesda, Maryland.
ManorCare and Quality Care will be reunited under a single owner if the bankruptcy plan is approved. Carlyle sold off the properties several years ago to a real estate investment trust that specializes in health care. That company then spun Quality Care out as a separate, publicly traded real estate investment trust. One consequence of the current bankruptcy deal is that Quality Care must give up its status as REIT and the tax advantages it confers.
New Boss
Plans also call for new senior management. The new owners plan to install Guy Sansone, currently a consultant at turnaround firm Alvarez & Marsal, as chief executive, replacing Steven M. Cavanaugh, according to the statement. The companies expect to win court approval in the second quarter and complete the transaction in the third period.
The rent dispute started in November 2016 when Ormond told Quality Care that his company was low on cash and couldn't afford to pay the full amount due. The landlord agreed to reduce the rent for the last two months of 2016, but the problem returned in March, according to court papers.
During the talks the followed, ManorCare continued to plead poverty while increasing management pay and corporate overhead, Quality Care claimed in its Los Angeles lawsuit.
When Carlyle Group bought HCR ManorCare in 2007, the $6.3 billion investment made sense amid projections that aging baby boomers would soon need the skilled nursing facilities ManorCare provided. Three years later, Carlyle sold ManorCare's buildings and land to HCP Inc, a REIT specializing in health care, while signing a long-term lease for the facilities.
Operators like ManorCare came under financial stress as the U.S. began to look for ways to cut Medicare costs and fewer people than expected moved into the apartments and communal housing facilities.
By the end of 2015, ManorCare's problems were so acute that HCP wrote down the value of its equity in the nursing-home provider to zero and estimated it would lose $817 million on the ManorCare deal.
The case is In re: HCR ManorCare Inc., 18-10467, U.S. Bankruptcy Court, District of Delaware (Wilmington).
To contact the reporter on this story: Steven Church in Wilmington, Delaware at schurch3@bloomberg.net.
To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Shannon D. Harrington
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