Genesis HealthCare Makes Significant Headway In Capital Strengthening Initiatives
KENNETT SQUARE, PA–Genesis HealthCare (Genesis or the Company), one of the nation's largest providers of post-acute care, today announced it has successfully completed the refinancing of its term loan facility and entered into a series of amendments to its significant loan and lease agreements. The Company also announced an agreement in principle on terms of a settlement with the Department of Justice (the DOJ) and an extension of the lock-up for a majority of the shares of the Company's common stock.
New Term Loan Facility
On July 29, 2016, Genesis entered into a new four year term loan agreement with HCRI Tucson Properties, Inc. (an affiliate of Welltower Inc.) / OHI Mezz Lender, LLC (an affiliate of Omega Healthcare Investors, Inc.) and Welltower Inc. as the administrative agent and collateral agent, respectively. The net proceeds of the new term loan, along with cash on hand, were used to repay in full the $156.5 million obligation, including a 2% prepayment penalty, under the prior term loan agreement dated December 3, 2012.
Borrowings under the new term loan agreement bear interest at a rate equal to the LIBOR rate (subject to a LIBOR floor of 1.00%) or an ABR rate (subject to a floor of 2.0%), plus in each case a specified applicable margin. The initial applicable margin for LIBOR rate loans is 13.0% per annum and the initial applicable margin for ABR rate loans is 12.0% per annum. At the Company's election, with respect to either LIBOR or ABR rate loans, up to 2.0% of the interest may be paid either in cash or paid-in-kind. The new term loan contains no pre-payment penalty provision.
Revolving Credit Facility Amendment
On July 29, 2016, Genesis also entered into an amendment regarding its Third Amended and Restated Credit Agreement dated February 2, 2015. The amendment modifies financial covenants to provide additional flexibility to the Company and its subsidiaries and increases the interest rate margin applicable to the revolving loans under the ABL credit agreement.
The new margin for LIBOR loans increased (i) for Tranche A-1 loans, from a range of 2.75% to 3.25% to a range of 3.00% to 3.50%, (ii) for Tranche A-2 loans, from a range of 2.50% to 3.00% to a range of 3.00% to 3.50% and (iii) for FILO Tranche, from 5.00% to 6.00%. The new margin for base rate (calculated as the highest of the (i) prime rate, (ii) the federal funds rate plus 3.00%, or (iii) LIBOR plus the excess of the applicable margin between LIBOR loans and base rate loans) loans increased (i) for Tranche A-1 loans, from a range of 1.75% to 2.25% to a range of 2.00% to 2.50%, (ii) for Tranche A-2 loans, from a range of 1.50% to 2.00% to a range of 2.00% to 2.50% and (iii) for FILO Tranche, from 4.00% to 5.00%.
Amendment of Financial Covenants in Leases and Debt Agreements
Certain of the Company's leases and debt agreements contain financial covenants. As previously reported in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, the Company anticipated it was likely to breach certain financial covenants in future periods. The Company has entered into amendments to its master leases with Welltower, Sabra Healthcare REIT, Inc., and Omega Healthcare Investors, Inc. and its bridge loan agreements with Welltower to reset the financial covenants under such agreements to current operating levels. All of these amendments reset financial covenants effective June 30, 2016 to levels with approximately a 20% to 25% cushion to current and projected EBITDA.
"We are very happy to close on these important agreements with our long-term credit partners, improving balance sheet strength and liquidity," said George V. Hager, Jr., Chief Executive Officer of Genesis.
Agreement in Principle on Financial Terms of a Settlement with DOJ
In July 2016, the Company and the DOJ reached an agreement in principle on the financial terms of a settlement regarding certain matters under investigation as well as matters that are the subject of pending litigation. Such matters pertain to allegations concerning federal and state healthcare fraud and abuse laws and regulations and are described more fully in the Company's Form 10-Q for the quarter ended March 31, 2016. The Company has agreed to the settlement in principle in order to resolve the allegations underlying these successor matters and to avoid the uncertainty and expense of litigation.
Based on the agreement in principle and in anticipation of the execution of final agreements and payment of a settlement amount of $52.7 million, the Company will record an additional loss contingency expense in the amount of $13.6 million in the second quarter of 2016, to increase its previously estimated and recorded liability. The Company expects to remit the settlement amount to the government over a period of five (5) years, once the agreement has been fully documented.
The agreement in principle is subject to negotiation, completion and execution of appropriate implementing agreements, including a settlement agreement or agreements, which are expected to be finalized in the second half of 2016, and the final approval of the respective parties. There can be no assurance that the Company will enter into a final settlement agreement with the DOJ.
On July 29, 2016, the holders of a majority of the voting power of the Company's common stock entered into a Second Amended and Restated Voting Agreement pursuant to which they agreed to enter into an extended "lock-up" through July 31, 2017. Additional details can be found in the Company's Form 8-K filed with the SEC on August 1, 2016.
Second Quarter 2016 Earnings Announcement
Genesis will release results for the second quarter ended June 30, 2016 after the market closes on Thursday, August 4, 2016. A conference call and webcast will be held Friday, August 5, 2016 at 8:30 a.m. Eastern Time to discuss the results.