Care Enterprises Refinancing Stalls as Firm Seeks Solution

Care Enterprises’ negotiations to refinance its debt and stave off possible bankruptcy have bogged down, prompting the Laguna Hills nursing home operator to extend a proposed exchange of bonds and notes that otherwise would have expired Tuesday.

Mark B. Kristof, Care Enterprises treasurer, said Tuesday that he is struggling to find “a common ground” in separate negotiations with the company’s two major bank lenders, Wells Fargo Bank and Citibank, and the owners of $68 million of company bonds and notes.

Care Enterprises has been trying since last month to persuade holders of the existing bonds and notes, which contain a covenant forbidding the company from refinancing its bank debt, to switch to newly issued notes and bonds containing no such restriction.

The exchange offer, which was scheduled to expire Tuesday, has been extended until Dec. 30 to give the company more time to negotiate with its creditors and possibly to alter the terms of the proposed swap.

Kristof has said the company needs to refinance its $35 million in bank debt because it cannot make a $5 million loan payment due Dec. 31. The inability to make the December payment and other payments due next year, he said, could force the company to seek protection from creditors in federal bankruptcy court.

As an enticement, Care Enterprises has offered to increase the interest rate it would pay on the proposed new bonds to 9.25%, contrasted with 9% on the existing bonds. The interest rate on the new notes would be 16.375%, up from 16%.

However, Kristof said Tuesday the banks have said they will not agree to refinance the company’s debt if the bond and note holders receive cash interest payments.

“They (the banks) asked us not to make interest payments in cash to bond holders for a year,” Kristof said.

After a year, he said, the banks would agree to cash interest payments with certain restrictions.

Although the bond and note holders would prefer cash interest payments, Kristof said he hopes that they will agree to an alternative arrangement involving non-cash payments, perhaps in the form of more debentures or other debt instruments.