Genesis HealthCare (NYSE: GEN) on Wednesday announced that it will voluntarily remove itself from the New York Stock Exchange — while also landing a $50 million capital infusion from ReGen Healthcare as part of an ongoing restructuring effort.
ReGen’s $50 million debt investment gives the company — a health care turnaround firm — a 25% ownership stake in the Kennett Square, Pa.-based operator’s subsidiaries; the investor has options that will allow it to increase its share in Genesis to 43% through, among other vehicles, an additional $25 million debt investment by April 15.
ReGen has appointed a pair of directors — David Harrington and John Randazzo — to fill two seats on the Genesis board, with former directors John DePodesta and Terry Rappuhn stepping down.
Genesis touted the new board members’ bona fides in the health care space. Harrington, a former Aetna and UnitedHealthcare executive, boosted the value of American Imaging Management from negative $19 million to $350 million during his seven years as CEO, according to a Genesis release. Harrington is also a founding principal of Pinta Capital Partners, an investment firm affiliated with ReGen.
Randazzo serves as executive chairman of Waters Edge Dermatology and Sentry Data Systems, a hospital data provider; he has also been a senior advisor to private equity heavyweight Warburg Pincus for 20 years.
“The company thanks Mr. DePodesta and Ms. Rappuhn for their service and dedication throughout their respective tenures,” Genesis CEO Robert Fish said in a statement. “Genesis welcomes Mr. Harrington and Mr. Randazzo on our Board of Directors and will benefit greatly from their deep and diversified experience in health care delivery management, health care sector financial expertise and entrepreneurial acumen.”
In conjunction with the ReGen cash injection, Genesis will remove itself from the NYSE, with the last day of trading anticipated to be March 25; the company intends to continue trading over-the-counter on the pink-sheet market. Genesis had faced an involuntarily de-listing from the exchange after its shares fell below $1 for 30 consecutive trading days back in April 2020.
“The severity of the pandemic dramatically impacted patient admissions, revenues, and costs, compounding the pressures of our long-term, lease-related debt obligations,” Fish said. “These restructuring transactions improve the financial and operational stability of the company significantly and build on the encouraging signs we are seeing as COVID-19 case rates continue to materially decline and residents, patients, and staff are vaccinated.”
The news broke the morning after Welltower Inc. (NYSE: WELL) announced an $880 million deal that will see the real estate investment trust (REIT) largely break up with Genesis, offloading 51 properties currently under the operator’s control.
“Today’s transactions represent the culmination of Welltower’s 10-year operating partnership with Genesis,” Welltower CFO Tim McHugh said in a statement. “We are pleased to have attained a mutually beneficial resolution for both companies, having generated substantial proceeds to Welltower while simultaneously de-risking the company.”
Genesis owes the REIT $423 million, though it will receive an $86 million lease termination payment and $170 million in additional debt relief from Welltower; the two parties will also continue to be linked through a 15% equity stake that the REIT will take in the operator.
The series of moves comes after months of speculation about the future of Genesis, which last August announced “substantial doubt” about its ability to continue as a going concern. Then-CEO George Hager cited the operator’s geographical footprint in the Northeast, which put it squarely in the crosshairs of the first major COVID-19 wave, as a key reason for the distress; even with more relief on top of the $186 million in CARES Act funds Genesis received as of last summer, the company said, there were no guarantees that it could stay afloat financially.
Multiple REITs, including Welltower, converted Genesis to cash terms and took significant write-downs, though the provider continued to pay its rents. Hager’s departure at the start of the year fueled speculation that a major restructuring was imminent, and the former CEO also took heat from Sen. Elizabeth Warren over a $5.2 million retention bonus he received as the COVID-19 pandemic raged — and the operator took federal stimulus funding.
The COVID-related woes weren’t the first hiccups for Genesis, one of the few remaining publicly traded nursing home giants, over the last few years. The operator in 2017 undertook a major restructuring with several of its landlords, including Welltower and Sabra Health Care REIT (Nasdaq: SBRA).
Sabra CEO Rick Matros dubbed his company’s effort to reduce its exposure to the operator as the “Genesis Exodus,” which largely wrapped by the end of 2018.
But those moves came in decidedly sunnier times for the post-acute and long-term care sector. The COVID-19 pandemic has fundamentally and permanently changed the operating landscape for nursing homes, with the immediate challenges of elevated expenses — primarily related to staffing, personal protective equipment (PPE), and testing — giving way to longer-term shifts such as growing consumer and payer support for home-based care and the specter of significantly harsher regulations.
“We sense that REITs may have lost their patience with GEN and may not provide the same level of support they did in 2018 when they cut rents and provided debt financing,” BMO Capital Markets observed in January. “We see REITs now more likely to sell or transition assets to new operators, which will likely cause modest levels of dilution. Positively, once and if GEN is resolved, we think REITs would benefit from not having GEN-related negative headlines in the press.”
This is a developing story. Please check back for updates.
