Skilled Healthcare down 75 percent on $671 million verdict
By Santosh Nadgir and Anand Basu - July 7, 2010
BANGALORE (Reuters) - A California jury ordered Skilled
Healthcare Group Inc to pay $671 million in damages for not
providing sufficient nursing care to patients, causing the
shares of the nursing home operator to plunge 75.6 percent
to a record low.
The jury found Skilled Healthcare violated California's
health and safety code by not providing the minimum 3.2
hours of direct nursing care per day to patients at 22
facilities.
In a statement, the company said it "strongly disagrees"
with and will challenge the verdict, which could strain its
liquidity and which observers said could lead to a
bankruptcy filing.
Jefferies & Co analyst Arthur Henderson said bankruptcy is
an option if Skilled Healthcare is unable to lower the
judgment amount.
"I would say that, if they got to pay that money, there is
not much that's really going to be workable," he said,
before adding he was surprised by the unusually large
judgment, given that no one was killed or injured.
Foothill Ranch, California-based Skilled Healthcare said its
primary professional liability insurance coverage was
already exhausted for the policy year.
In its statement, the company said that, even if it is
successful in obtaining insurance coverage in this matter,
the amount of the jury verdict far exceeds the policy limits
of its insurance.
And although it has $94 million of borrowing capacity under
a $100 million revolving credit facility, the company said
its ability to draw on the facility was limited by certain
covenants.
The jury, which has yet to hear the punitive damages phase
of the trial, awarded $613 million in statutory damages and
$58 million in restitution.
If the company appeals the judge's final ruling -- expected
in a few weeks -- it will have to post a bond for 150
percent of the judgment amount.
"We certainly recognize (bankruptcy) as a possibility. If
that happens, that's something we'll essentially take it as
it comes," Timothy Needham, a lawyer for the plaintiffs,
told Reuters.
Needham, who represented a class of more than 32,000 people,
said he was hopeful the verdict would bring a sea change in
the way nursing homes do business.
This is the second time in a decade the company could face a
liquidity crunch.
In 2001, Skilled Healthcare filed for Chapter 11 protection
after the federal government changed reimbursement rates and
procedures for medical services provided to individuals in
1999.
It emerged from that proceeding in 2003.
The company's shares closed down $4.70 at $1.52 on the New
York Stock Exchange after earlier falling as low as $1.43.
Skilled Healthcare went public in 2007.
reprinted from the Reuters.com