MARINER PARENT, UNIT READY WITH RESTRUCTURING PLAN
January 17, 2002 • The Daily Deal • by Jonathan Berke
The parent company and its health group unit went through 18 debtor-in-possession amendments and stayed in Chapter 11 for 24 months, and now await a bankruptcy judge’s ruling on whether their restructuring plan can go to creditors for a vote.
At face value, the need for a parent company and its unit to have separate debtor-in-possession loans, 18 DIP agreement amendments and a 24-month stay in Chapter 11 certainly suggest a bankruptcy that’s coming apart at the seams. But in the case of Mariner Post-Acute Network Inc. and its Mariner Health Group Inc. unit, just the opposite is true.
Both entities filed for bankruptcy in January 2000 and needed separate DIPs because Mariner Post-Acute’s and Mariner Health’s pre-petition credit agreements were distinct. In the end, it probably didn’t matter. Mariner Post-Acute barely even drew from its $50 million DIP facility. In fact, it now has a $950 million restructuring plan moving along in the approval process.
"It took a while to get an agreement because each bank group had its own independent view on the value of each asset," said Michael Gries, Mariner Post-Acute’s restructuring adviser and a principal with Conway Del Genio Gries & Co.
That a plan’s confirmation is in the offing and neither entity had to use much of its DIP loans belie how complex Mariner Post-Acute’s and Mariner Health’s situation had become.
For one thing, Mariner Post-Acute’s DIP deal was amended five times, Mariner Health’s 13 times — though mostly because of longer stay in bankruptcy. Also, J.P. Morgan Chase & Co. withdrew as the administrative agent on Mariner Post-Acute’s $50 million DIP in November. (It stayed in the syndicate, which Foothill Capital Corp. then led.)
Mariner Post-Acute never drew funds off its $50 million DIP. Originally, the DIP commitment was $100 million. Mariner Health Group, meanwhile, only drew $2 million or so from a $25 million DIP facility led by PNC Bank NA. That facility once had been $50 million.
Both DIP commitments were reduced because neither entity really needed that much liquidity. But early on, that would have been difficult to figure. After all, the institution of the prospective payment system in MediCare coverage created uncertainty about whether Mariner Post-Acute’s accounts receivable would get paid, according to Gries.
Ultimately, Mariner Post-Acute didn’t tap its DIP because management reduced overhead by closing 85 underperforming healthcare facilities. The result: a $240 million boost in cash flow. Another shot in the arm has been the recent completion of the sale of Mariner Post-Acute’s pharmaceutical assets to Omnicare Inc., which resulted in $97 million in proceeds upfront, plus $18 million in deferred payments.
Judge Mary Walrath in the U.S. Bankruptcy Court for the District of Delaware in Wilmington will rule Jan. 23 whether Mariner Post-Acute and Mariner Health’s plan can go to creditors for a vote.
No matter the result, two-headed DIPs like the ones the two entities have probably won’t re-surface. "Bank loan arrangers have been far more cognizant how emergency loans will be treated in bankruptcy [now]," said Chris Donnelly, a director at Standard & Poor’s PMD, which tracks the leveraged loan market. "They have moved increasingly to coordinate the [pre-petition] loans with the DIP facilities."