Integrated Health Services' creditors said yesterday that they support a plan to sell the Sparks-based company to Trans Healthcare Inc.
Glenn B. Rice, a lawyer for a committee of the creditors, said it was convinced the sale was the best deal that could be reached for the company, which has been attempting reorganization under bankruptcy protection for nearly three years.
"The people who sat on the committee have the most at stake and supported the process," Rice said.
The deal to sell Integrated to Trans Healthcare Inc., a fast-growing nursing home company based in Camp Hill, Pa., was announced this month. THI, which would roughly triple in size, plans to move its headquarters to Integrated's campus in northern Baltimore County and to maintain the 675-person work force there.
The filing of a formal plan this week represents another step toward the conclusion of a local company that grew rapidly in the mid-1990s and declined when Medicare reimbursements were cut.
If the deal receives final approval from creditors and the U.S. Bankruptcy Court in Delaware, privately held THI would succeed Integrated as a locally based company with national reach and annual revenue of more than $1 billion. Despite selling off pieces of itself during the bankruptcy process, Integrated still has about 180 skilled nursing homes and a large rehabilitation services division. It employs 39,000.
Confirming the sale agreement this month, Anthony Misitano, chief executive officer of THI, said, "Our plan is to continue to grow the business out of the Maryland office."
THI operates 94 nursing homes, including nine in Maryland.
While the bankruptcy court reviews the plan, there would be an opportunity for another company to offer a higher bid than THI's, but Rice said he doesn't expect that.
According to the filings, Integrated and its investment bankers approached 85 potential buyers and received six bids in April, and "THI emerged as the leading candidate."
Joel Weiden, a spokesman for IHS, said yesterday that the company expected the process to be completed during the second quarter of 2003.
Under a reorganization plan filed Thursday, THI would pay $97.5 million for Integrated and would assume about $230 million in liabilities. The Sparks campus, according to the plan, would be sold separately.
According to the filings, the sale would enable senior lenders to collect 8.3 to 10.9 cents on the dollar, while "general unsecured claims" - consisting, Rice said, mostly of claims by suppliers to IHS - would be paid off at 2.5 to 3.8 cents on the dollar.
The sale is a better result than could be achieved by either liquidating the company or attempting to reorganize it as a stand-alone entity, according to the filings. Liquidation, the filing said, would mean that most creditors "would receive no distribution of property, and Chapter 11 administrative claims would not be satisfied in full."
Because the company leases, rather than owns, its nursing homes, it has few hard assets to sell off. (THI would be taking over leases and management contracts but, in most cases, would not own the buildings.)
As a continuing business, Integrated would be worth between $50 million and $100 million, according to a valuation performed by UBS Warburg, the investment banking firm advising the company. UBS Warburg projected that a free-standing Integrated would generate only slight growth (4 percent a year in revenue and 2 percent a year in earnings) over the next five years. Earnings would be highly dependent on whether Congress increases its Medicare reimbursements, the filings said.
The projected slow growth rate contrasts with Integrated's high-flying days. From annual revenue of $195 million in 1992, the company reached $3 billion in revenue by 1997.
The growth represented aggressive acquisitions and the success of IHS' strategy of "subacute care." That meant it offered more services than a traditional nursing home, such as sophisticated rehabilitation programs, but was able to charge less than a hospital.
The Medicare program wanted to control costs by shortening hospital stays, so it ended up paying for large amounts of subacute care.
In 1998, however, Medicare changed its reimbursement formulas. As a result, it was paying IHS $60 less per patient per day, according to the filings with the bankruptcy court. The revenue drop meant Integrated couldn't keep up the payments on the $3 billion in debt it had run up while making acquisitions. It filed for bankruptcy reorganization in February 2000.
After the filing, IHS brought in a turnaround specialist, Joseph A. Bondi. The company's founder and CEO, Robert N. Elkins, left with a severance package valued at $55 million, most of it in forgiveness of loans he had been given to buy company stock, which had become nearly worthless.
In February, IHS raised about $75 million in cash by spinning off its respiratory therapy and medical equipment division, now operating as the publicly traded Rotech Healthcare Inc. It has also sold off its interest in about 100 nursing homes.