A federal bankruptcy judge is encouraging Petersen Health Care to work out a dispute with one of its creditors and avoid a protracted legal fight that could drag out uncertainty for nursing home residents and their families.
Judge Thomas Horan of the U.S. Bankruptcy Court of Delaware said Tuesday there's a risk of the case "collapsing under its own weight" if legal wrangling between the Peoria-based nursing home company and X-Caliber Funding isn't resolved.
X-Caliber Funding argues Petersen can't file for bankruptcy on behalf of eight properties currently under the management of their court-appointed receiver, Michael Flanagan. But Petersen says it can, and argues a streamlined sale of all its properties will be best for all of the company's many lenders.
Attorney Daniel McGuire told the court in March that Petersen intends to sell its properties off, likely to multiple buyers, in a move that would pay off secured lenders and allow for some recovery for unsecured creditors.
In an emergency motion filed in March, X-Caliber asks the court to dismiss the Chapter 11 case or instead appoint the receiver to lead the bankruptcy process for those facilities given that Petersen's chief restructuring officer is keeping the current management in place during the reorganization.
X-Caliber says Petersen can't be trusted given a record of mismanagement, noting the eight facilities were in an apparent state of disarray when the receiver took over.
There was more than $4.6 million owed to vendors at that time, and employees were reportedly buying supplies out of their own pockets. X-Caliber said Petersen Healthcare was under investigation for sexual and physical abuse at a facility. One facility had an inoperable wheelchair lift. Another had a generator go out during a deep winter freeze, and a different facility saw the memory care unit and dining room shut down due to water leaks.
In its objection to X-Caliber's motion, Petersen calls the allegations "largely without factual or evidentiary basis" and dismisses their relevance to the matter at hand.
Petersen also denies that it was improperly using funds from its profitable enterprises to prop up "non-performing" assets. The company argues that while its cash management system may be complex, it's within regulatory requirements and not evidence of mismanagement.
Properties now managed by the receiver include the Petersen-owned nursing homes in El Paso, Galesburg, Knoxville, Flanagan, Monmouth, Kewanee, and Polo, Mo. The receiver is set to be deposed on April 29.
In court filings, Petersen Healthcare says market pressures, difficulty recruiting staff, inflation, and lingering COVID-19 impacts led to the company defaulting on its debts, including a $45 million government-backed loan. They said the money problems were further exacerbated by a ransomware attack in October 2023 and a widely-publicized cyberattack on Change Healthcare.
X-Caliber says they're owed at least $31.7 million. Petersen Healthcare collectively claims more than $295 million in debts. The nursing homes themselves are organized under a plethora of limited liability corporations, or LLCs, solely owned by Peoria businessman Mark B. Petersen.
Attorney Nancy Peterman, who represents unsecured creditors in the case, said the matter is slowing the whole case down.
"There's been a lot of time and expense with respect to these motions of the terms of professional fees and costs, in terms of diverting our attention from what's really the issue here, which is making sure that facilities are stabilized and residents are cared for and making sure that we can actually get a full robust sale process moving," she said.
She encouraged the parties to work out a compromise and allow the bankruptcy process to get underway. Kristina Stanger, an attorney representing creditor Martin Brothers Distributing, agreed.
"It's a waste. It's a delay. And our client also encourages the parties to consider an economic solution here that nobody's happy with. Time is of the essence," Stanger said.
Horan cleared his calendar for May 14 and 15 for hearings the issue, but asked the parties involved to try to find another way to work out an agreement.
Petersen Healthcare has nearly 4,000 employees working in more than 90 nursing homes throughout Illinois, Iowa, and Missouri. The facilities have bed space for nearly 6,800 residents, and the company posted an annual operating revenue of $339.7 million in 2023.
