A Delaware bankruptcy judge approved the $320 million sale of LifeCare Holdings Inc. to private equity owner Carlyle Group LP Tuesday, overruling the U.S. government's move to nix the deal because the firm's credit bid didn't account for paying the tax bill generated by the deal.
The government objected to Carlyle's proposed asset acquisition on the ground that the cashless transaction would leave LifeCare unable to pay an estimated $24 million in capital gains taxes, rendering the estate administratively insolvent.
The tax bill is due to Senior Secured lender debt being much higher than the tax basis of LifeCare's assets. How will this new higher tax basis work its way through Medicare reimbursement formulas for LTAC's?
Private Equity Underwriters love Uncle Sam's business, they just hate paying taxes:
The corporate tax base is eroding because many large businesses are able to avoid the corporate tax rules altogether and choose to be taxed as pass-throughs instead. Bain Capital, the Blackstone Group, the Carlyle Group and other large asset management firms are organized as partnerships, yet take in billions of revenue each year.
LifeCare 's sad history with The Carlyle Group is over. Carlyle's long term PEU ownership drove the life out of the company. LifeCare is in the hands of its "Stalking Horse" Senior Secured Creditors who may or may not pay the capital gains tax bill.