Care Enterprises Offers Plan to Pay Its Creditors

Care Enterprises, the bankrupt operator of one of the nation’s largest nursing home chains, has proposed the sale of 25 nursing homes to help raise cash to pay off $117 million in debt.

Under a proposed reorganization plan filed Friday with the U.S. Bankruptcy Court in Los Angeles, the Tustin firm would retain its current managers and majority owners.

Although the plan provides that all creditors would be repaid by 1995, it already has met with objections from some creditor representatives who contend that it is based on unrealistically optimistic cash flow forecasts. The proposal is subject to approval of creditors and the bankruptcy court.

The plan calls for the sale or closing of 25 unprofitable facilities and for the leasing and mortgaging of others. In the last 5 months, Care has sold 10 facilities or leases to raise cash.

The company has 94 remaining nursing homes, and its goal is to reduce the number to 69 by June, 1990.

The plan assumes that Care can save $18 million by continuing cost-cutting moves begun in August. Those measures are expected to be completely implemented by mid-1989.

The proposal also anticipates that the state will increase reimbursements to nursing homes for Medi-Cal patients.

In all, the plan projects that the company will raise $181 million to meet its obligations, including $151 from improved business operations, $8 million from the sale of some facilities and $23 million from obtaining mortgages or selling leaseholds on others.

Under the proposal, Care’s suppliers have the choice of accepting immediate payment of half of the $5.4 million they are owed, with no subsequent payments, or to be fully repaid in 3 years.

The company’s secured creditors, Wells Fargo Bank and Citibank, would be repaid the $40 million they are owed, plus interest, over 3 years.

And Care’s bondholders, which are owed $67 million, would receive unsecured promissory notes paying 12% interest. If the company defaulted on the notes, the bondholders could convert them to common stock at a preset exchange rate.

“We feel the plan is fair, equitable and achievable,” said Bill Izatt, Care’s vice president of marketing and public relations. He said the company was interested in fair treatment for all of its creditors, including banks, bondholders and suppliers.

But Guy Nutter, an attorney who said he represents numerous Care creditors, was unimpressed.

“If I were a bondholder, I would consider it a slap in the face,” Nutter said. By the time they convert their debt to equity, he said, the value of the company might have further deteriorated.

Nutter contends that the plan “clearly favors current management,” which he says is unfairly trying to stay in control of the company.

“It is trying to force bondholders and other creditors to wait while current management tries to rectify the problems they created,” Nutter said. He added that he would prefer having the company immediately distribute all stock in the company to the company’s creditors, who then could install new management.

Richard Havel, a Los Angeles attorney who represents Care’s creditors committee, said he is still analyzing Care’s proposed reorganization plan but already has some reservations.

“The committee is concerned that the debtor has been overly optimistic in its projections of future improvements in its business, so that its plan is not feasible or likely to succeed,” Havel said. “We are going to seriously explore the development of an alternative plan.”

In its business plan documents, Care Enterprises reported unaudited financial results showing a loss of $10.6 million for the first 9 months of 1988.

According to a projection in Care’s proposed business plan, the company expects to increase its pretax earnings from facilities to $49.6 million in 1995 from $10 million this year.

It also proposes to turn around the company from a net loss of $7 million in 1989 to a profit of $20 million in 1995.

Havel said the creditors committee also has “very serious concern about the present management” of Care.

Among the factors leading to the concerns, he said, are the current management’s “chronic losing of money, indictments and general failure to obtain the confidence of the (creditors) committee.”

In August, criminal charges were filed against four Care officials, including Chairman and Chief Executive Lee Bangerter and his twin brother, Chief Operating Officer Dee Bangerter, for allegedly providing substandard care at a nursing home in Playa del Rey.

Irving Sulmeyer, Care’s principal attorney, said it was no surprise to him that Nutter objects to the proposed plan. He said Nutter represents Ralph Hazelbaker, a shareholder who has sued the company on a different matter.

Sulmeyer said he is more concerned about reaching a consensus with the creditors committee. “This is an ongoing process,” he said. “Certainly, it (the plan) is not set in concrete.”

He said the company will hold a meeting with its bankers on Thursday and next week with the creditors committee to go over provisions of the plan. On Monday, attorneys for the banks said they were not yet prepared to say whether they supported the plan.

“I believe a reasonable plan can be negotiated with the banks and the creditors committee,” Sulmeyer said.

Sulmeyer said the company has 60 additional days in which to have a reorganizational plan approved by creditors and confirmed by the bankruptcy court. After that, the court could consider an alternative plan proposed by any of the creditors.