Troubled Care Enterprises Ready to Be Lean Machine
After operating nearly three years under the protection of the U.S. Bankruptcy Court, Care Enterprises Inc. will emerge today as a much smaller but more financially sound nursing home operator, company officials said Monday.
“What emerges tomorrow is a new Care Enterprises. Its assets have been restructured, its capital structure overhauled. It is issuing new stock and has a new board of directors,” said Douglas Drumwright, Care’s chief executive.
Care Enterprises is less than half its former size, with 52 nursing home facilities in California, Ohio, West Virginia and New Mexico. By comparison, it operated 126 facilities in March, 1986, two years before filing for Chapter 11 bankruptcy.
The sale of facilities was a key part of Care’s plan to reduce a heavy debt load that it acquired during an aggressive expansion program in the early 1980s.
Drumwright acknowledged that Care’s goal of selling off operations to generate cash has not been achieved without a struggle, especially since the real estate market softened dramatically last summer and potential buyers had trouble obtaining financing.
Even so, Drumwright said that since new management took control of Care in September, 1989, the company has succeeded in selling 33 buildings to raise about $21 million. Five of those sales were scheduled to close Monday.
After slashing its corporate staff by 30%, Care is trying to sublease its headquarters building in Tustin and find smaller quarters elsewhere, Drumwright said.
By selling less profitable facilities, cutting overhead and improving efficiency, Drumwright said, Care achieved break-even earnings from operations in 1990. The final figures are still being compiled, he added.
The company lost $150 million from 1986 through 1989.
However, Drumwright conceded that the road ahead will be rough. Care will not only have to cope with low reimbursement rates from federal and state government insurance programs for the poor and elderly, he said, but also with $31.5 million in debt owned its bank creditors, Citibank and Wells Fargo.
Under a new agreement with the banks, Care must repay the entire bank debt with interest over five years. Drumwright said the terms of the loan are harsh and could force Care to sell 15 more facilities to reduce the firm’s debt.
Drumwright said Care will try to boost profits to enable it to attract another lender willing to refinance its bank debt at more favorable terms. “I think we have to demonstrate operating profitability,” he said.
CARE ENTERPRISES Saddled by debt in the wake of an aggressive expansion program, Care Enterprises lost $152.2 million from 1986 to 1989. (Figures in millions) 1985: $3.6 1986: -$10 1987: -$66.5 1988: -$29 1989: -$46.7 Source: Care Enterprises Inc.
