A deal to sell the bankrupt Haven Healthcare nursing-home chain has abruptly collapsed, leaving state officials scrambling to put together a backup plan to turn over the chain to two or three investment firms that would hire new operators to run the homes.
Attorney General Richard Blumenthal said Thursday that Formation Capital, which owns Genesis HealthCare, notified the state late Wednesday that it was pulling out of an $85 million deal to take over 14 of Haven's homes in Connecticut and 10 in other New England states, without giving a reason.
Formation announced June 12 that it had signed a purchase agreement for the homes, but the company had two weeks to reconsider before the deal was to be finalized in bankruptcy court Thursday.
"We're obviously disappointed," Blumenthal said of the last-minute withdrawal. "[But] we have planned and prepared for this possibility, so we have a Plan B. …We're optimistic that we have an alternative plan to keep the homes open and preserve and enhance the quality of care."
Blumenthal said the backup plan would entail breaking up the chain by turning over the homes to the secured creditors that already finance or hold mortgages on Haven's homes — Omega Healthcare Investors, CapitalSource Finance and Nationwide Health Properties.
Each of those owners would hire "experienced, credible operators" approved by the state and could decide to keep the homes or offer them to other potential buyers.
If the creditors and a bankruptcy court judge approve the plan, the transfer of ownership would be expected to occur in July.
Many nursing homes across the country are owned by real-estate investment firms and managed by other entities — a form of ownership called a REIT, or a real-estate investment trust. By law, a REIT cannot operate a nursing home, but must hire a licensed provider to do so.
Blumenthal said he was hopeful that the plan will go forward so the state can avoid placing the chain into state receivership — an expensive, last-resort process that could drive down occupancy in the nursing homes and lead some of them to close. The new plan would allow for an "orderly transition" for the Haven homes, he said.
He said that under the proposal, as under the Genesis plan, Haven's top management would be replaced.
"The former management of Haven is history. We are all committed to a new day for these nursing homes, their residents and their dedicated employees," Blumenthal said.
State officials would not comment on which management groups might be interested in operating the homes. Genesis is one of dozens of operating companies that run nursing homes in the Northeast.
Blumenthal and officials of the state Department of Social Services said they and the health department will be closely monitoring operations of the Haven homes while the future of the chain remains in limbo.
The abrupt withdrawal of Formation and Genesis was a blow to Blumenthal and other state officials, who have worked for months to restore stability to the troubled chain.
Occupancy in some Haven homes has fallen off dramatically since the chain declared bankruptcy seven months ago.
The agreement with Formation came after another investment firm, Michigan-based LifeHouse Retirement Properties Inc., withdrew its offer to buy the chain after failing to secure the increases in state Medicaid rates that it had requested.
Haven — one of the largest chains in the state, with more than 1,800 beds — declared bankruptcy last November in the wake of a series in The Courant detailing its financial troubles and repeated citations for patient-care deficiencies. The company defaulted on millions of dollars in bills for supplies and utilities while its CEO used corporate assets to launch a Nashville recording company and make other personal purchases.
The withdrawal of Formation and Genesis came at the end of a two-week "due diligence" period in which the companies reviewed details of the deal.
The Department of Social Services had offered Genesis sizable Medicaid rate increases and other incentives to take over the chain, but also had required that Genesis agree to provide detailed financial reports and meet certain staffing standards once it took over operations.
Officials of Genesis and Formation would not comment Thursday on why the deal fell apart.
"The parties were unable to resolve a number of outstanding issues," said Jeanne Moore, a company spokeswoman. "Formation and Genesis dedicated significant time, energy and resources in an all-out effort to make this complicated transaction work."
A spokesman for the social services department said the transfer of ownership to the investment firms would be a step in stabilizing the chain.
"This approach could eventually turn into permanent ownership and operating situations, or sales to other purchasers," said the spokesman, David Dearborn. He said there were benefits to splitting the chain among buyers.
"Potential buyers or management companies can now focus on all or some of the Connecticut facilities," he said. "The problems with [Haven's] out-of-state facilities that sunk the Genesis deal won't be a factor in putting together Connecticut purchase agreements."
Genesis officials would not comment on whether problems with Haven's non-Connecticut homes were a factor in the decision to withdraw. Blumenthal said his office received no explanation.
Omega holds mortgages on a number of Haven homes in other New England states and could step in to take ownership of those homes, Blumenthal said.
Blumenthal said Thursday that a wide-ranging investigation of Haven's financial dealings will continue, regardless of the outcome of the sale of the chain.
Contact Lisa Chedekel at email@example.com.
For an archive of stories on Haven Healthcare, visit www.courant.com/haven.