The landlord of USA’s 2nd-biggest nursing home chain is haggling with the company’s top executive over a lavish compensation package, even as the chain teeters on the edge of bankruptcy threat.
Paul Ormond, CEO of HCR ManorCare, is claiming $100 million in deferred compensation that private equity giant Carlyle Group promised to pay him as part of a $6.3 billion buyout of the company in the year of 2007, in accordance to sources close to the situation.
But Ormond is proving to be the hang-up as Carlyle and HCR’s landlord, publicly traded Quality Care Properties, scramble to cut an out-of-court restructuring deal, one source claimed.
Ormond is insisting on immediate payment under the ten-year-old compensation contract, structured to assist him avoid taxes, despite the fact that the nursing home chain is not just in dire financial straits, but also is being investigated by the Department of Justice for performing unimportant services, sources said.
Quality Care Properties “says it can’t pay that kind of money to Ormond now in the face of a DOJ investigation,” and QCP can throw HCR into default, the source claimed.
Ormond would likely get at least $60 million in a bankruptcy threat, the source said.
The DOJ in 2015 filed a complaint against HCR alleging that HCR routinely submitted false claims to Medicare for rehabilitation therapy services that weren’t “medically reasonable and essential”.
The DOJ alleges HCR exerted pressure on nursing home therapists to “exploit” elderly patients for profits, in accordance to the complaint.
The claims against HCR are allegations, and there has been no determination of liability. The case is yet in active litigation, a DOJ spokesman said.
Despite the legal mess, Ormond needs to be paid fully in exchange for agreeing to a restructuring, or he is willing to take his chances in a bankruptcy threat that could end up shuttering several of HCR’s nursing homes, in accordance with one source.
Since the year of 1991, Ormond has run the provider that owns about 500 skilled nursing and rehab centers, and manages 34,000 beds in states involving Florida and Pennsylvania. In recent weeks, HCR defaulted on its loans, sources said.
Meanwhile, HCR creditors owed $380 million, involving Leon Black’s Apollo Global Management, are threatening to start court actions to seize HCR assets in “business days or weeks, not months,” a source said.
Carlyle co-CEO David Rubenstein hosts a show on Bloomberg Television, and constantly speaks about the virtues of private equity. Driving a nursing home chain into bankruptcy threat would be embarrassing, sources said.
When purchasing HCR in the year of 2007, Carlyle assured skeptical state regulators that a leveraged buyout of a nursing home wouldn’t put HCR at risk.
But 3 years later in the year of 2010, HCR sold its real estate for $6.1 billion to what became QCP, arranging a sale-leaseback transaction. Carlyle likely made a guaranteed profit on HCR thanks to the real estate sale, sources said.
HCR then initiated paying $550 million in annual rent to QCP, and HCR within some years could not afford the payments.
QCP steadily reduced the rent to its current $35 million, the source said.
Ormond didn’t return calls. Quality Care and Apollo refused to comment.
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