Care Enterprises Seeks Protection From Creditors : Chapter 11 Filing Follows Security Pacific Demand
Care Enterprises, a Tustin-based firm that owns or operates 103 nursing homes across the nation, filed a bankruptcy petition Monday to reorganize its debts after nearly seven months of unsuccessful negotiations with lenders.
Irving Sulmeyer, attorney for the financially troubled firm, said the company felt it was forced to seek protection under Chapter 11 of the U.S. Bankruptcy Code after Security Pacific National Bank demanded immediate payment last week of $51.7 million owed to a group of bondholders.
The bankruptcy court proceeding will not affect the operation of Care nursing homes, including 46 in Southern California, said Bill Izatt, Care’s vice president of marketing and spokesman.
Other homes are located in Northern California, Utah, West Virginia, Ohio, New Mexico and Florida.
“This allows us a chance to relieve ourselves from outside pressures and operate the business,” he said. “We felt this was the best move for us.”
Patients Unaffected
The nursing facilities, he said, are owned and managed by Care subsidiary companies that currently are not part of the parent company’s bankruptcy action. He said that suppliers and Care employees will continue to be paid as usual and that there will be no disruption of patient care.
“We don’t perceive that our patients are in jeopardy,” he said.
Last week two Care subsidiaries, Americare Southwest of Arizona and Americare Southwest, also filed Chapter 11 bankruptcy to fend off litigation. However, Izatt said both of these entities also are holding companies that do not directly operate nursing homes.
According to Care’s bankruptcy filing, Care Enterprises has total assets of $256.9 million and total liabilities of $180.4 million. The bankruptcy petition, filed, in Los Angeles, would prevent creditors from seizing any of Care’s assets and will make the court the forum for the company’s debt reorganization, Sulmeyer said.
Care said it has arranged for a credit line of up to $10 million from an unidentified lender in case it needs additional financing for its operations during the bankruptcy proceeding.
The company sustained huge losses following a major expansion drive in 1985, when Care acquired 35 nursing homes from a company called Americare. Care lost nearly $10 million in 1986 and another $13 million for the first three quarters of 1987. Fourth-quarter results have not been released.
“In the past, the company expanded too quickly and borrowed too much,” Izatt acknowledged. Since the Americare acquisition, he said, Care has sold or withdrawn from the management of 19 nursing homes.
Care, like other nursing home operators throughout the nation, has suffered from cutbacks in government reimbursements for indigent care and rising labor costs.
Last April the company’s president, Boyd W. Hendrickson, resigned. Also last spring the company became the subject of several takeover attempts, including one by Chairman Lee Roy Bangerter’s half brother, Ted D. Nelson.
Care Enterprises is part of what once was a sprawling business empire created by Nelson and the twin Bangerter brothers, Lee Roy and Dee Roy, who once had far-flung investments in real estate, banking and dairy products. Two of their other business ventures, Knudsen Foods and Winn Enterprises, sought protection from creditors in a Chapter 11 bankruptcy in 1986.
Care’s losses have sent the company scrambling for loan extensions from its bankers and bondholders since last July, when the company secured an eight-month extension on $14.2 million in bank loans.
After missing a $2.3-million interest payment on bonds in December, the company was granted another bank loan extension in January when it failed to make a $5-million interest payment to its lenders, Wells Fargo and Citibank. The two banks are owed about $40 million, according to Sulmeyer.
Since September, Care officials have been trying unsuccessfully to persuade holders of $68.7 million in bonds to accept a securities swap on new terms that would allow the company to refinance its bank debt.
In its latest negotiations, Care also tried to persuade Care bondholders to forgo interest for a year--and in turn receive a higher face value for their bonds--so Care would have enough cash to repay some of its bank loan. However, only about 20% of the bondholders agreed to go along with Care’s reorganization plan. In filing for bankruptcy, the company said it was abandoning its efforts to get bondholder approval of the exchange offer, which will expire March 31.
George Friedman, vice president of the Milwaukee Co. brokerage firm whose clients hold about 5% of the Care bonds, said the clients did not accept Care’s offer because they lacked confidence that the company would resume making interest payments after a year’s postponement.
Friedman said he believed that the transfer of Care’s reorganization efforts into the bankruptcy court will be “good for the bondholders.
“The court will insist on some sort of restructuring and some kind of payments (to bondholders),” Friedman said. “I’d rather have the court as a policeman backing me up even if it is a slightly inferior deal than what Care offered.”
