Genesis Healthcare Settles Inside Dispute, Clears Path for Bankruptcy Exit
Genesis Healthcare announced a settlement Wednesday with its controlling investor, resolving pending adversary lawsuits and improving recoveries for junior creditors as the bankrupt nursing home operator moves toward Chapter 11 plan confirmation.
The deal came as Judge Stacey Jernigan of the U.S. Bankruptcy Court in Dallas began a trial over the validity of a $450 million claim held by entities tied to controlling investor Joel Landau. The trial began Tuesday but was suspended after lunch as the parties sought more time for settlement talks that had been ongoing since last week.
While the full term sheet has not been made public, Brian Rosen, representing the unsecured creditors’ committee, said in court that “certain defendants” will contribute $150 million in cash to the bankruptcy estate exclusively for unsecured creditors.
Two entities owned by Landau and longtime associate David Gefner will waive more than $100 million in secured term-loan claims and several hundred million dollars in general unsecured claims. ReGen Healthcare, Landau’s investment vehicle, will also waive its $100 million claim against the estate. Andrew Dietderich, representing Landau and Gefner, confirmed the terms.
The settlement significantly improves recoveries for unsecured creditors, who had expected about $15 million on more than $1 billion in claims. “Now it’s in the hundreds of millions of dollars,” Rosen said.
Many unsecured creditors are former nursing home residents or their families with personal injury and wrongful death claims against Genesis.
Thomas Califano, representing the Genesis Special Restructuring Committee, said the settlement involving all major stakeholders would pave the way for a consensual plan confirmation, currently scheduled for October.
That appeared unlikely just 24 hours earlier. At Tuesday’s trial, Jon Muenz, also representing the Special Restructuring Committee, alleged Landau used his board influence to seize control of the $450 million claim. The committee and unsecured creditors’ committee sued to challenge the debt, which Muenz said original lender Welltower had agreed to forgive to keep Genesis operating.
Dietderich countered that taking control of the loans was a “magic trick” to prevent Genesis from facing hefty taxes that would have resulted from Welltower’s debt forgiveness.(Search who partially controls WellTower)
“All we want to do is get our fair shake on the proceeds when the dust settles,” Dietderich said.
