Gulf Coast Health Care’s plan draws objection from Delta noteholders

By Sarah Lizee

Olympia, Wash., April 11 – Gulf Coast Health Care, LLC’s Chapter 11 plan of liquidation drew an objection Friday from noteholders Delta Health Group, LLC, Cordova Rehab, LLC and Pensacola Health Trust, LLC, according to a filing with the U.S. Bankruptcy Court for the District of Delaware.

The noteholder group, which holds the largest general unsecured claim in the company’s case, said the company has collaborated with OHI Asset Funding (DE), LLC (Omega), New Ark Capital, LLC, certain equity sponsors and service providers to appropriate and control the Delta Health noteholders’ economic and voting rights.

The parties had entered into a restructuring support agreement through which they sought to convey the Delta voting and distribution rights to the Omega landlords and thereby use the distributions to which the Delta Health noteholders are entitled under the Delta Health claim to settle the debtors’ lease obligations to the Omega landlords, the Delta noteholder group said.

The noteholders later filed an adversary proceeding, contending that the Omega landlords had made an election of remedies under Florida law by taking back the subject facilities, placing them under the control of a designated new manager, and ultimately seeking to sell them to a new operator. As a result, the Delta Health noteholders said they have been discharged from any further obligation or restriction under the intercreditor and subordination agreement with the Omega landlords.

“The RSA parties then changed course,” the Delta noteholders said.

After reaching a settlement with the official committee of unsecured creditors for the resolution of potential avoidance actions with a gross amount at issue of more than $400 million, the debtors filed their amended plan.

“Working in concert with the other RSA parties and the Omega landlords, the debtors now propose to have the Delta voting and distribution rights appropriated by both Omega and New Ark, with these funds then ‘redirected’ to other general unsecured creditors to fund the settlement with the committee,” the noteholders said.

“In essence, the Delta voting and distribution rights are being used to facilitate the resolution of claims against the debtors’ insiders, and both Omega and New Ark are actively deploying their respective intercreditor agreements to try to accomplish this goal.”

As previously reported, the plan has also drawn an objection from Regions 3 and 9 U.S. trustee Andrew R. Vara, who expressed concerns over the plan’s non-consensual third-party releases in favor of non-debtors on holders of litigation claims.

The plan confirmation hearing is scheduled for April 19.

Pensacola, Fla.-based Gulf Coast Health Care is a nursing home chain. The company filed Chapter 11 bankruptcy on Oct. 14 under case number 21-11336.

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