Gulf Coast Health’s modified Chapter 11 plan confirmed by court

By Sarah Lizee

Olympia, Wash., June 27 – Gulf Coast Health Care, LLC received confirmation of its recently modified Chapter 11 plan from the U.S. Bankruptcy Court for the District of Delaware, according to an order filed Monday.

The company said the modified plan represents the culmination of its eight-month effort to reach consensus with virtually all stakeholders in its Chapter 11 cases.

Following mediation in January and February, the debtors, the official committee of unsecured creditors, the Omega entities, and the contribution parties – comprising New Ark, the equity sponsors, and the service providers – all reached agreement on a plan construct that guaranteed a minimum recovery of $10 million to holders of unsecured claims.

The company said a critical component of the agreement, however, was that the contribution parties receive non-consensual third-party releases from holders of class 7B litigation claims.

Following a four-day contested confirmation hearing in late-April, the court determined that, although the first amended plan otherwise met the requirements of bankruptcy code section 1129, it did not meet the exacting standards in the Third Circuit for approval of non-consensual third-party releases.

“This decision left the debtors teetering on the edge of Chapter 7 conversion, which – based on the uncontroverted evidence at the confirmation hearing – would leave unsecured creditors with no recovery,” the company said in court documents.

Gulf Coast said it redoubled its efforts to negotiate with the contribution parties and the objecting tort plaintiffs.

The company said it also became clear that, in order to avoid conversion and achieve consensus around a plan, the debtors would not only require additional concessions from the contribution parties, but also from the Omega entities and the professionals.

“In the end, all economic stakeholders agreed to chip in, and the debtors believe that they now have unanimous support for confirmation of the modified plan, including agreement from each of the objecting tort plaintiffs – representing more than 50 litigation claims previously in class 7B,” the company said.

“The end result is millions of dollars in additional consideration flowing to the debtors’ unsecured creditors, as compared to the amounts provided under the first amended plan that was solicited following approval of the disclosure statement.”

Under the modified plan, in addition to amounts required to be funded under the claims purchase agreements, the contribution parties have agreed to provide to the debtors’ estates a total contribution of $16.24 million in cash consideration, almost $3 million more than what was offered in the previous plan.

The Omega entities have agreed to provide $750,000 in additional cash consideration, on top of the $1 million under the previous plan, to fund the class 7C recoveries.

The debtors have also reached agreement with their D&O insurer, Zurich American Insurance Co., on settlement terms that are necessary to obtain confirmation of the modified plan. Zurich has agreed to provide the debtors with $2.1 million in exchange for a release of their $5 million D&O policy.

In order to achieve the necessary $10 million minimum unsecured claims cash amount, each of the case professionals has agreed to certain discounts to their billed fees.

Gulf Coast said the modified plan provides the same or greater consideration to holders of class 7A general unsecured claims and class 7B debtor litigation claims, and creates a new class 7C, which includes those holders originally in class 7B who have asserted third-party claims against the contribution parties.

The holders in class 7C receive enhanced treatment on account of their third-party claims, and every holder in class 7C has consented to their modified treatment.

To achieve this recovery for class 7B and class 7C, the modifications provide an allocated split of the original consideration contained in the plan, which is based upon the fact that more than 40% of the debtors’ claim allocation estimates have been moved from class 7B to new class 7C.

Of the original 37% of the $10 million minimum unsecured claims cash amount allocated to class 7B under the former plan, 20.4% now remains in class 7B, while 16.6% has been transferred to class 7C – along with the 54 claims now transferred from class 7B to the newly created class 7C.

An additional $1.5 million contribution that was announced on the record at the confirmation hearing has been allocated to holders of claims in class 7C to partially compensate these holders for their claims against third parties. The $1.5 million is part of the $3 million additional amount provided by the contribution parties mentioned earlier.

The company said that because each of the parties has consented to their treatment under the modified plan and has agreed to change their votes to support the plan, the plan no longer contains a non-consensual third-party release.

Pensacola, Fla.-based Gulf Coast Health Care is a nursing home chain. The company filed Chapter 11 bankruptcy on Oct. 14, 2021 under case number 21-11336.

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