By Dietrich Knauth
Dec 1 (Reuters) – Genesis HealthCare said on Monday that an insider bid had won a bankruptcy auction for all of its assets, which would allow the same ownership group to maintain control of the company’s nursing homes while using bankruptcy to slash debts and medical malpractice claims.
The winning bid was submitted by CPE 88988 LLC, an affiliate of Genesis’ private equity owner, Pima Capital Partners, according to court documents filed in bankruptcy court in Dallas. The bid includes $40 million in cash, as well as agreements to assume certain debts and bankruptcy expenses incurred by Genesis.
The company will seek approval of the sale at a Dec. 10 court hearing. The sale may be opposed by Genesis’ court-appointed creditors committee, which argued in a Nov. 25 court filing that the auction appeared to be “heavily skewed” in favor of the insider bid.
Genesis’ decision to sell to insiders was criticized by Massachusetts Senator Elizabeth Warren, a Democrat, who said Monday that the proposed sale would reward the very people who she says caused the company’s decline by loading it up with debt and subjecting patients to substandard care.
Genesis did not immediately respond to a request for comment on Warren’s statement.
Genesis, which operates 175 skilled nursing facilities and assisted living facilities in 18 U.S. states, filed for bankruptcy on July 9 with over $2.3 billion in debt.
The company faces more than 200 lawsuits alleging malpractice, wrongful death or other injury. At the time of its bankruptcy, the company said it owed $259 million to plaintiffs, including settlements that the company had agreed to pay, while plaintiffs have argued the company owes far more.
Genesis was bought by private equity firms JER Partners and Formation Capital in 2007, and those owners added to the company’s debt through a series of acquisitions while selling off the company’s real estate. ReGen Healthcare, a subsidiary of Pinta Capital, bought most of the company’s equity in a 2021 deal that also added to the company’s debt.
Genesis began its auction on Nov. 18, with CPE 88988 serving as a “stalking horse,” whose initial bid would be accepted unless higher offers came in. Genesis received two other bids, and the subsequent auction led CPE 88988 to improve its bid by increasing the cash portion of its offer by $25 million from its $15 million starting point, according to court documents.
Other private equity-backed health companies that have filed for bankruptcy in recent months include hospital chains Steward Health and Prospect Medical Group. Both of those companies, like Genesis, took on large amounts of debt during private equity buyouts, sold their real estate, and eventually collapsed into bankruptcy.
