[UPDATED] LaVie Files for Chapter 11 Bankruptcy, Citing Skilled Nursing Sector Challenges, 'Legacy Liabilities' (2024)

LaVie Care Centers, operator of 43 skilled nursing and assisted living facilities, filed for Chapter 11 bankruptcy on Sunday.

Intending to facilitate an efficient financial restructuring plan with minimal disruption to its operations, LaVie filed voluntary petitions for relief under Chapter 11 in the U.S. Bankruptcy Court for the Northern District of Georgia.

Despite the bankruptcy filing, LaVie assured that its facilities would continue to operate as usual, ensuring uninterrupted care and treatment for its residents.

“This process was initiated to put the company in the best position for long-term success,” a spokesperson for LaVie told Skilled Nursing News. “The expectation is that the company will be well positioned to build on its current strength following the conclusion of this process. The intention of this process is to align the capital structure with the strength of the current portfolio.”

The spokesperson emphasized that LaVie’s current portfolio of 43 nursing homes with 4300 beds is operationally strong and generates positive cash flow, adding, “But it has been held back by legacy liabilities from operations that the company exited in recent years.”

The liabilities linked to its legacy facilities are mainly associated with those that LaVie no longer actively oversees and exited last year, and are mainly located in its Florida portfolio, he stated.

The debts related to legacy facilities, include long-term lease obligations, $249 million in unpaid vendor bills, and $155 million in litigation, according to the court filings.

Moreover, the company’s staffing problems, particularly during the pandemic, resulted in heavy use of agency labor, incurring $277 million in agency labor costs, the filing stated.

In Florida alone, its facilities lost $133 million from 2022 to 2023 due to the state’s high minimum staffing requirements.

“The financial performance of the 43 facilities in LaVie’s current portfolio remains strong,” he said. “Stout Capital has been retained to maximize the value of the operations during this process.”

And while the spokesperson did not offer a timeline for the completion of the financial restructuring, he did say the plan was intentionally designed to ensure that there is no negative impact on the ability to deliver care or the breadth of services offered by the remaining 43 facilities in the LaVie portfolio.

Sector challenges

“The challenges facing the skilled nursing industry broadly since COVID-19 are well known and persist today. These challenges combined with the legacy liabilities associated with operations that are no longer in the company’s portfolio are what precipitated these filings,” he said

Based in Atlanta, LaVie has divested more than 90 facilities since the pandemic. The company currently operates in five states and has 3,600 employees, according to court papers.

Ankura Consulting has been retained to provide certain financial advisory and restructuring services, with M. Benjamin Jones, Senior Managing Director at Ankura Consulting, as the company’s chief restructuring officer.

“Today’s announcement is an important step forward to strengthen the company’s financial footing in order to combat some of the challenges faced by the skilled nursing industry generally since the COVID-19 onset, as well as potential looming challenges ahead,” Jones said in a press release. “Following the company’s reduction in footprint amidst this challenging operating environment, after analyzing all available options, the company concluded that a court-supervised process was necessary to provide the best path forward for all of our stakeholders.”

Support from Omega, key stakeholders

Stakeholders in the LaVie properties have been very supportive, especially Omega Healthcare Investors (NYSE: OHI), LaVie’s biggest lender and landlord, the spokesperson said.

Meanwhile, LaVie also announced that it has secured a commitment of $20 million in debtor-in-possession financing from key stakeholders, including affiliates of Omega.

“We have elected to commit $10 million to fund 50% of the expected debtor-in-possession financing, in order to support sufficient liquidity to effectively operate the facilities during bankruptcy,” Omega shared in a press release Monday.

Omega had been shedding troubled LaVie facilities throughout 2023 and the first quarter of 2024, selling 29 LaVie facilities for gross proceeds of $305 million in the third quarter of 2023 alone, marking a substantial reduction in Omega’s exposure to LaVie assets.

And last month, executives for the Maryland-based real estate investment trust (REIT) shared that its remaining LaVie portfolio consisted of 13 facilities in North Carolina, nine in Pennsylvania, six in Mississippi, two in Virginia, and one in Florida.

“We remain in ongoing discussions with LaVie to determine the best overall feature of each of these remaining 31 facilities,” CFO Robert Stephenson said at the time, adding that LaVie has consistently paid $1.5 million per month, and will continue to do so until the completion of portfolio restructuring and LaVie’s ability to pay contractual rent.

Another partner in the remaining LaVie properties, Healthcare Services Group (Nasdaq: HCSG), which provides dining, housekeeping, and nutritional services across 48 states, also supported the move.

LaVie’s restructuring will not change HCSG’s relationship, the company said in a press release. The service provider expects to continue to partner with LaVie with no impact on its future revenue or earnings nor any disruption in post petition payments, HCSG said.

“This is the best course for relationships with Omega, HCSG, and other key partners, in order to position [LaVie] to continue delivering the same level of care, the same level of employment and giving it an opportunity to actually grow the business from here,” said the spokesperson for LaVie.