HCR ManorCare inks alternative support deal; Quality Care to merge

By Caroline Salls

Pittsburgh, April 30 – HCR ManorCare, Inc. entered into an alternative plan support agreement in connection with a merger agreement between Quality Care Properties, Inc., Welltower, Inc. and Welltower subsidiary Potomac Acquisition LLC, according to an 8-K filed with the Securities and Exchange Commission by Quality Care.

Under the merger agreement, Welltower will acquire all of Quality Care’s capital stock in an all-cash deal.

The other parties to the HCR ManorCare support agreement include ProMedica Health System, Inc., Suburban Healthco, Inc. and Meerkat I LLC.

The support agreement calls for ProMedica to acquire all of the newly issued common stock of HCR as part of an alternative plan of reorganization in connection with HCR’s ongoing bankruptcy proceeding.

Upon completion of the merger, Quality Care said its stockholders will receive $20.75 in cash for each share, plus an additional right to receive a per share cash payment of $0.006 per day during the period beginning on Aug. 25, 2018 through the closing of the merger.

Quality Care’s and Welltower’s obligation to complete the merger is subject to approval by holders of a majority of the outstanding shares of company common stock, delivery of a legal opinion addressing Quality Care’s qualification as a real estate investment trust, compliance with covenants, accuracy of each party’s representations, absence of injunctions or orders that prohibit or restrain completion and the closing of the HCR acquisition.

Closing is expected to occur in the third quarter.

Upon termination of the merger agreement under specified circumstances, including receipt of a superior offer, Quality Care said it will be required to pay Welltower a termination fee equal to either $19.8 million if the superior offer is made by an excluded party or $59.5 million.

If the HCR acquisition does not close by Oct. 12 or HCR does not obtain court approval of a revised Chapter 11 plan before June 29, Quality Care will be entitled to receive a reverse termination fee of $250 million.

Amended plan

Under the proposed amended HCR plan, Suburban will acquire all of the newly issued common stock of HCR in exchange for a cash contribution, consisting of either a capital contribution or a combination of a capital contribution and an unsecured, subordinated loan in a principal amount not to exceed $550 million, by ProMedica to HCR in an amount sufficient to pay in full all claims related to HCR’s existing secured credit facility, a $440 million agreed deferred rent obligation and a $50 million distribution to the holders of HCR’s existing preferred and common equity.

All creditors, including holders of subordinated claims, of HCR other than Quality Care will be unimpaired under the plan.

Holders of HCR’s existing preferred and common equity will receive a portion of the total equity distribution.

ProMedica has agreed to reimburse HCR for some restructuring costs paid from May 1 until the earlier of the plan effective date and the date of termination of the alternative support agreement, in an amount not to exceed $2 million per month.

Support agreement changes

Quality Care said the amendment to the support agreement makes termination of the alternative agreement a condition to the completion of the transactions covered by the existing support agreement and extends the outside date for completion of the transactions to Jan. 15, 2019.

As of April 25, Quality Care said the restructuring support parties collectively owned 38.9 million shares of common stock of HCR, representing more than 80% of the total shares outstanding on that date.

HCR ManorCare is a Toledo, Ohio-based provider of short-term, post-acute services and long-term care. The company filed for bankruptcy on March 4 in U.S. Bankruptcy Court for the District of Delaware under Chapter 11 case number 18-10467.

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