Care Enterprises Receives $4-Million Cash Infusion

Care Enterprises Inc.’s largest shareholder has agreed to provide $4 million in working capital to the nursing home chain to ease its cash crunch as it emerges from bankruptcy.

A group of New York investors that holds a 13.7% stake in Tustin-based Care Enterprises will provide the money to let Care management “breathe a little easier,” said Doug Drumwright, Care’s chief executive. The investment was disclosed Thursday in a filing with the Securities and Exchange Commission.

Drumwright said the investor group is providing $3 million in exchange for a note that can be converted to stock in the nursing home company, as well as a $1-million line of credit.

Drumwright said the financing agreement was approved by the U.S. Bankruptcy Court in November and Care will receive most of the money this month.

Care’s management “has been operating from hand-to-mouth for the last year,” Drumwright said. The new funds “will allow management to focus more on operating the company and not be as worried about day-to-day cash flow,” he added.

He said the Tustin firm is especially vulnerable to delays in payments from government insurers, which account for more than 70% of total billings. He said the company fell short of cash last summer when the state was late in approving a budget for Medi-Cal, the state’s insurance program for the poor, and no bills were paid for several weeks.

R.D. Smith & Co. is a New York investment firm that specializes in buying and selling securities issued by troubled companies. A Smith-led investment group bought a substantial number of bonds in Care during the past two years. The investment group became Care’s largest shareholder this month when Care emerged from a Chapter 11 bankruptcy reorganization in a plan that converted bonded debt to Care stock.