Vanguard Healthcare seeks ruling related to status of facility leases

By Caroline Salls

Pittsburgh, April 7 – Vanguard Healthcare, LLC’s official committee of unsecured creditors filed a lawsuit Friday against several holders of titles of real estate and improvements through which the company operates skilled nursing facilities, seeking a ruling that agreements between the defendants and debtor tenants do not constitute a “true lease” under the Bankruptcy Code.

According to the complaint filed with the U.S. Bankruptcy Court for the Middle District of Tennessee, for facilities acquired by one of the defendants before 2011, a mortgage loan was obtained by the defendant. Those loans ranged from less than $2 million to $7.5 million.

However, the committee said the original title agreements “contained language that is inconsistent with a true lease.” Specifically, the committee said the agreements required the debtors to pay “debt service rent” equal to the amount of the debt service owed on the acquisition loan that was secured by a mortgage on the facility, as well as to pay all “impositions” assessed as a result of the ownership of the facility, including taxes.

The committee said some of the agreements also required the operating debtor to pay franchise and excise taxes, banking fees and accounting fees.

The agreements also required the operating debtor to pay a landlord rent in addition to the debt service rent.

Although the original agreements prohibited defendants from increasing the amount of the fee mortgage on the leased property without the tenant’s consent, the committee said the operating debtors agreed under amended leases that the debt service rent would be equal to the amount required to service any and all mortgages on the property, “expressly including any increases in the mortgage amount.”

As a result, the committee said each tenant’s rent increased to the amount required to service a mortgage in excess of $50 million from a mortgage in the range of $2 million to $8 million.

“Each of the defendants executed amended mortgages increasing the principal amount of the debt secured to a high of $86.455 million,” according to the complaint.

Vanguard is a Brentwood, Tenn., long-term care provider. The company filed bankruptcy on May 6, 2016 under Chapter 11 case number 16-03296.

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