Friday, November 9, 2007

Can Carlyle Float ManorCare Deal?

With the credit crunch in full force, major lenders and buyers are balking at the mortgage backed debt The Carlyle Group plans to use to finance their acquisition of ManorCare and its 550 facilities, mostly nursing homes. If the deal goes through, it will be because the bonds got floated at higher interest prices. Larger interest costs must be covered, from health care price increases or operational cost cutting. Many groups have raised the question as to the future impact on patient care from such moves.

Should the deal fall through, it will because of the toxic credit environment, caused by a flood of mortgage backed securities failures. Ironically, Carlyle failed real hospital patients in a different toxic gumbo, Hurricane Katrina. Their LifeCare Hospitals unit in Memorial Hospital had the largest number of patient deaths post landfall.

One can cite their bad luck in purchasing LifeCare just weeks before Katrina sideswiped the Big Easy, but the management of the aftermath has been pure Carlyle. They blamed the patient deaths on a doctor and clinical staff from Memorial Hospital. Where were LifeCare clinicians and administrators? They had a legal, moral and ethical obligation to care for their patients in such a disaster? Why did they abandon them to Tenet providers?

They did more than paint a doctor as a Joseph Hazelwood. Carlyle's blame deflector turned toward the federal government, claiming patients became wards of Uncle Sam as soon as FEMA teams set up in New Orleans. If individual character is measured by behavior in times of extreme difficulty, that should apply to corporations as well. If Carlyle failed 24 patients in their time of need, the stand up thing would be to admit it and make things right. Not this private equity underwriter (PEU).

Carlyle already sued Tenet for its share of the liability. The judgement remains sealed, under lock and key for those currently trying to get fair treatment for the loss of their loved ones. Anyone expecting the feds to call Carlyle on the carpet might want to read President Bush's Lessons Learned report on Hurricane Katrina. Be sure to look hard for references to LifeCare's 24 patient deaths. Search for Memorial Hospital, the facility with a combined 36 deaths between Carlyle and Tenet. What? You couldn't find any in the whole tome. That's odd, isn't it?

Ironically, the ManorCare deal may be sunk but not for any other reason than Carlyle couldn't float the bonds. If they do pay more to push the debt, ponder this. If Carlyle could fail one out of twenty one long term acute care hospitals, what can the PEU do with 550 mostly nursing home facilities in a disaster?