Omega Pulls Plug on Restructuring Agreement with Struggling Orianna Skilled Nursing Chain

Omega Healthcare Investors, Inc. (NYSE: OHI) has pulled out of a proposed restructuring agreement with troubled tenant Orianna Health Systems, citing frustration with the process and a desire to protect its shareholders.

The Hunt Valley, Md.-based real estate investment trust (REIT) said Monday that Omega will terminate its participation in the deal effective July 25.

“The company will be considering and/or pursuing alternative courses of action to protect our assets and shareholder value,” CEO Taylor Pickett said in a statement announcing the move. “While we are frustrated that the restructuring of the Orianna portfolio could not be concluded in accordance with the restructuring support agreement negotiated with Orianna and its plan of reorganization, we continue to believe that final resolution will result in our previously stated range of $32 million to $38 million of rent or rent equivalents from the assets that constituted our Orianna portfolio.”

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Orianna — known in legal documents by its official name, 4 West Holdings, Inc. — entered bankruptcy protection in March after it fell behind on its payments to landlords; Omega had begun handling its Orianna account on a cash basis, the company indicated in an earnings call last fall.

Under the terms of the proposed restructuring agreement, which a federal bankruptcy court approved in May, Orianna would transfer operations at 23 of the 42 Omega-owned facilities in its portfolio to new providers, while also soliciting potential proposals for the sale or restructuring of the remaining 19. The REIT also agreed to extend up to $30 million in debtor-in-possession financing to Orianna for liquidity purposes during the bankruptcy proceedings, while the provider would be responsible for $1 million per month in partial rent payments.

In pulling out of the deal, Pickett pointed to a July 1 transaction that saw its Orianna portfolio in Mississippi transferred to an existing Omega tenant, under an agreement that would bring in $12 million in annual rents. The REIT also indicated that the previously announced transfers remain on track, with a target completion date within “the next few months.”

A spokesperson for Omega declined to provide any additional information about the events that led the REIT to terminate the deal, noting that the process remains ongoing. A message to Orianna was not returned as of press time.

“As we have throughout, we will work with operators to assure that residents continue to be protected,” Pickett said in the statement.

Chad Vanacore, an analyst who covers Omega for investment firm Stifel, said the July 1 transaction put the REIT ahead of schedule on its overall Orianna plan; that transaction, combined with $5 million in additional transfers due over the next few months, “mitigates the overall risk.”

“Management is experienced with these types of negotiations, and we ultimately believe OHI will be successful at selling or transitioning the remaining assets,” Vanacore told Skilled Nursing News.

Orianna isn’t the only provider that has given Omega headaches over the last 18 months: The REIT reached an agreement with Signature HealthCARE back in May, after that operator had fallen $25 million behind on its rent. Under the terms of that deal, Omega agreed to provide $25 million in working capital financing to Signature, along with rent deferments and annual funding for capital expenditures.

Written by Alex Spanko

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