Care Told to Pay $51 Million to Bondholders
Care Enterprises, a Tustin-based nursing home company struggling to avoid bankruptcy, said Tuesday that a trustee has demanded immediate payment of $51.7 million that the company owes to a group of bondholders.
The action by the trustee, Security Pacific Bank, follows a similar move by R.D. Smith, a New York brokerage house claiming to represent 29% of the holders of the $51.7-million bond issue. Care has a second bond issue outstanding totaling $17 million.
Fell Into Default
Care Enterprises fell into default on the debt instruments when it failed to make a $2.3-million interest payment due Dec. 1.
Care Enterprises is contesting R.D. Smith’s legal ability to call for payment on the bonds. But the rules governing the bond issue undisputedly give Security Pacific the right to do so, according to George Friedman, a broker with Milwaukee Co., a brokerage representing 5% of the bondholders. “There are no ifs, ands or buts about it,” Friedman said.
Friedman said he doubts that Care Enterprises can repay the $51.7 million. Depending on Security Pacific’s intentions, he said, the bank could use the threat of a court action to recover the bondholders’ money in an effort to gain clout in negotiations with Care Enterprises or to push the company into a Chapter 11 bankruptcy reorganization.
Neither officials for Security Pacific nor Care Enterprises could be reached for comment Tuesday.
Care Enterprises said in a prepared statement that it “had received notice from the trustee of its 9% convertible senior subordinated debentures of the acceleration of the $51.75-million principal amount of the debentures.”
The company also said it will attempt to persuade the bondholders to revoke the trustee’s action as a requirement for accepting a plan for exchanging their existing bonds for new bonds.
For three months, Care Enterprises has been trying to arrange a bond swap to allow it to restructure its debt. The latest version of the proposed exchange would require bondholders to forgo interest payments through January, 1989, and to lift current restrictions on the company’s ability to refinance its bank debt. In return, they would receive an additional 10% in principal value and would have the option to sell their bonds at face value in 1998, as opposed to the original maturity date of 2002.
Unless the company can persuade 75% of the bondholders to accept the terms of the bond swap, its bank lenders have said they will not negotiate further extensions of the company’s $35 million in senior bank loans, according to Friedman.
20% of Bondholders Agreed
As of a month ago, only 20% of the bondholders had agreed to the bond exchange, Friedman said.
Ralph Hazelbaker, a Care Enterprises shareholder who has been trying unsuccessfully to repurchase some of the nursing homes he sold to the company in 1985, said the company’s suggestion that bondholders will overrule their trustee is unrealistic. He said the company is unwilling “to face the music.”
“I think it is kind of a dark day for Care Enterprises,” said Hazelbaker. He said he had received notice from the company’s attorney that two of Care Enterprises’ subsidiaries, Americare Southwest and Americare of Arizona, recently filed for Chapter 11 bankruptcy reorganizations.
But Friedman said he did not believe that the bankruptcy filings indicated that the subsidiaries, which do not own any of the nursing homes, are in dire financial trouble. He said he believed that Care Enterprises sought bankruptcy protection for the subsidiaries to fend off recent lawsuits Hazelbaker has filed against them.
Hazelbaker said about 30 days ago that he and other owners of six nursing homes Care Enterprises managed under contract filed a lawsuit against the two subsidiaries and about a dozen officers and director of Care Enterprises. The suit alleged that funds belonging to those nursing homes were illegally deposited into Care Enterprises’ own bank account.
