Genesis Healthcare announced a settlement Wednesday with its controlling investor, resolving pending adversary lawsuits and boosting recovery for junior creditors as the bankrupt nursing home operator moves toward chapter 11 plan confirmation.
The deal came together as Judge Stacey Jernigan of the U.S. Bankruptcy Court in Dallas began a trial to determine the validity of a $450 million claim asserted by entities associated with Genesis controlling investor Joel Landau.
The trial began Tuesday but was suspended following a lunch recess as the parties asked the judge for more time to resume their settlement talks that have been under way since last week.
While the full term sheet has yet to be made public, Brian Rosen, a lawyer representing the committee of unsecured creditors, said in court that "certain defendants" will contribute $150 million in cash to the bankruptcy estate exclusively for unsecured creditors.
Under the agreement, two entities owned by Landau and his longtime associate David Gefner will waive more than $100 million in secured term-loan claims and several hundred million dollars in general unsecured claims.
ReGen Healthcare, Landau's investment vehicle, will also waive its $100 million claim against the estate. Andrew Dietderich, a lawyer representing Landau and Gefner, confirmed the terms in court.
The settlement significantly improves recoveries for unsecured creditors, who had expected to receive about $15 million on more than $1 billion in claims.
"Now it's in the hundreds of millions of dollars," Rosen said.
Many of these unsecured creditors are former nursing home residents or their families who hold personal injury and wrongful death claims against Genesis.
Thomas Califano, a lawyer for the Genesis Special Restructuring Committee, said the settlement, which involves all the major stakeholders, would pave the way toward a consensual plan confirmation, currently scheduled for October.
That consensus seemed unlikely just 24 hours earlier. At Tuesday's trial kickoff, Jon Muenz, another lawyer for the Genesis Special Restructuring Committee, alleged that Landau used his board influence to seize control of a $450 million claim. The committee initiated the lawsuit alongside the unsecured creditors' committee to challenge the debt, which Muenz argued original lender Welltower had agreed to forgive to keep the nursing home operator afloat.
Dietderich, representing Landau and Gefner, countered that taking control of the $450 million in loans was a "magic trick" to keep Genesis from hefty taxes that would have been imposed under Welltower's debt forgiveness.
"All we want to do is get our fair shake on the proceeds when the dust settles," Dietderich said.