March 15, 2000
Medicare Seeks $1 Billion in Claims from Vencor
Yesterday the U.S. Department of Justice said that it is
entitled to recoup $1 billion from Vencor Inc., which is operating under
chapter 11 protection, The Washington Post reported. The
government is accusing one of the largest nursing home chains in the
United States with knowingly defrauding the government since 1992.
Vencor issued a statement in January stating that it was the subject of
investigations by the Justice Department into 'various Medicare
reimbursement issues.' Those included costs that Vencor hospitals had
reported to the government, billing practices for ancillary service and
'various quality of care issues in its hospitals and nursing centers.'
Vencor said the resolution of the inquiries 'could include a payment to
the government which would have a material adverse effect on the
company's liquidity and financial position.' A spokesperson for the
Justice Department said the $1 billion government claim includes the
triple damages provides by law. This implies that the government
estimates the total amount defrauded to be about $333 million.
The Vencor case is indicative of problems the government has
when trying to recoup money it believes was defrauded from federal
health insurance programs such as Medicare after companies file chapter
11. In some cases, chapter 11 impedes such efforts, and in others, the
financial weakness of the companies can force the government to accept
less than full repayment. Last month, Beverly Enterprises Inc., which is
the largest operator of nursing homes in the country, settled charges
that it defrauded Medicare by agreeing to pay $175 million, most to be
deducted from future Medicare payments. The government said it settled
for less than half of the loss to taxpayers to avoid causing 'financial
hardship' for the company. Although financially troubled, Beverly has
not filed chapter 11. Sun Healthcare Group Inc., another large nursing
home chain that is currently in bankruptcy, has reported that it is a
defendant in 'whistle-blower suits' accusing it of false claims. Sun
said the Justice Department has joined one of the suits and informed Sun
of several 'outstanding inquiries.' Sun said that the government spent
more than three years investigating a Sun subsidiary, but never took any
action.
Ernst & Young Sues for $185 Million in Merry-Go-Round
Case
When Ernst & Young paid $185 million to settle allegations
that its accountants had botched the attempted turnaround of
Maryland-based Merry-Go-Round clothing stores last year, the firm issued
a statement blaming other unnamed parties for the company's failure to
survive, The Washington Post reported. Yesterday the firm made
clear whom it was referring to at that time: its Washington attorneys,
the firm of Swidler Berlin Shereff Friedman. Ernst & Young has filed
a suit against the firm for fraud and asked the circuit court in
Baltimore City to order the firm to award Ernst & Young the $185
million it had to turn over to Merry-Go-Round creditors last year. The
new suit alleges that when Swidler Berlin managing partner Roger Frankel
recommended in 1993 that the clothing store company retain Ernst &
Young, he did not disclose to Merry-Go-Round and to the bankruptcy court
overseeing the company's chapter 11 that there was an ongoing business
relationship between the law firm and the accounting firm. At that time,
the law firm had received more than $4 million in fees from Ernst &
Young and had helped arrange a meeting between E&Y Chairman Ray
Groves and President Clinton to promote the accounting firm, according
to the lawsuit. The suit alleges that this information was kept from the
court because Swidler Berlin was afraid that the disclosure might
prevent Ernst & Young from getting the Merry-Go-Round assignment.
Frankel will soon step down as partner and was not available to comment
on the new suit. The firm, however, said the suit is 'baseless.' In
depositions, Frankel said that he was not required to disclose to the
court or the company the business liaisons with Ernst & Young.
This suit stems from a bankruptcy trustee's lawsuit against Ernst
& Young alleging that it had committed malpractice in failing to
develop a plan to save the Joppa, Md.-based Merry-Go-Round chain, which
had 1,400 stores in 44 states and D.C. The trustee brought to light the
relationship between the two firms, and Ernst & Young settled just
prior to going to trial. The accounting firm said it had no choice,
given the relationship with Swidler Berlin, which damaged its defense.
Now the accounting firm wants the law firm to shoulder some of the
blame.
Rate Hikes So Far Do Not Affect Credit Card Use
Increasing interest rates have not yet had any effect on
consumer spending patterns, but the impact of the last rate tightening
will be felt by credit card holders over the next two to three months,
according to Fitch IBCA's latest Credit Card Movers & Shakers
report. High interest rates spark concerns that the most leveraged
consumers will become overburdened, resulting in higher charge-off
rates. Michael Dean, senior director in Fitch IBCA's Asset-backed Group,
said, 'However, even the remotest signs of credit deterioration remain
absent.' According to January index results, consumers were still
repaying credit card balances at or near record rates. Serious
delinquencies are contracting further from their recent highs and
personal bankruptcy filings are undercutting event he most aggressive
predictions for the year, Fitch IBCA said.
Integrated Health Service Is Largest Health Care Bankruptcy
in 2000
BankruptcyData.com announced the list of largest bond claims
and the largest credit facility claims against Integrated Health
Services Inc. are now available on its web site, according to a newswire
report. The post-acute health care operator and 437 affiliates filed
chapter 11 in early February in the District of Delaware. The company's
$5.39 billion in pre-petition assets make it the largest health care
bankruptcy filing in 2000. It is also the second largest chapter 11
filing to date this year; PennCorp Financial Group is the largest, with
$6.03 billion in pre-petition assets. Integrated is the latest in series
of health care company chapter 11 filings, including Mariner Post-Acute
Network, Sun Healthcare Group Inc., Vencor Inc. and Physicians Resource
Group. Reports on all these filings are online at
href='http://www.bankruptcydata.com/'>bankruptcydata.com.
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InteliData Announces WorldCorp No Longer Holds Shares
InteliData Technologies Corp., Reston, Va., announced that
WorldCorp Inc. no longer holds any shares of InteliData common stock,
according to a newswire report. WorldCorp, one of the founding investors
in InteliData, is in the process of liquidating under chapter 11.
Japan's Bankruptcies Up 51.1 Percent
Japanese corporate bankruptcies jumped 51.1 percent in February
from the prior year to 1,443, according to Teikoku Databank, a research
firm in Tokyo. Total debt held by Japanese companies that declared
bankruptcy last month increased 48.4 percent to 1.21 trillion yen, which
is the first year-on-year rise in seven months. That increase is
primarily due to the failure of two publicly listed companies. Teikoku
Databank said the corporate bankruptcies have risen year on year for the
fourth consecutive month and climbed more than 50 percent for the first
time in eight years. The research firm said, 'The sharp increase in the
bankruptcy data indicated corporate restructuring is forcing an
increasing number of Japanese firms to shut down themselves.'
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Thai Court Rules TPI Insolvent
Thailand's Central Bankruptcy Court has ruled that the
country's largest debt defaulter Thai Petrochemical Industry (TPI) was
insolvent and ordered that the company, which has $3.4 billion in debt
to 147 creditors, be restructured, according to a newswire report. The
court also ruled that the current CEO be the interim planner for the
company while creditors meet to pick their own planner to restructure
the company and its debts. There is no scheduled time period for the
creditors to select their own planner. TPI has not paid its debts since
1997 when the Thai economy plunged into a recession after the
devaluation of the Thai baht in July 1997. Judge Pornchai Asawattanaporn
said, 'It is proven that the debtors have more debt than assets. The
argument by a TPI witness that the company has more assets than debts
could not be heard because the financial adviser was not certified and
guaranteed by TPI.' The ruling, which came 30 months after legal
wrangling between the company and its creditors, was positive for
financial markets, Thai Finance Minister Tarrin Nimmanhaeminda said. It
is expected that the ruling will boost foreign direct investment and
capital raising, and expedite the pace of overall corporate
restructuring.
Court Approves Store Closing Sales for Gantos
Gantos Inc., Stamford, Conn., announced that the bankruptcy
court overseeing its chapter 11 case has approved the sale of its store
inventories and other store assets, as well as an agreement with Gordon
Brothers Retail Partners LLC and the Ozer Group LLC to conduct the store
closing sales, according to a newswire report. The clothing retailer was
unable to satisfy the terms and conditions of its debtor-in-possession
facility and its closing stores as part a proposed liquidation. The
sales have begun and will continue for about eight weeks. The company
anticipates winding down business under the court's supervision under
chapter 11 and with the assistance of various professionals to be
approved by the court. Effective March 9, the court approved the
retention of Kahn Consulting Inc. (KCI) as responsible officer for the
company. Gantos is a specialty retailer of women's wear and accessories;
it operates 114 stores in 24 states.
Turbodyne Reports on Sale of Light Metals Division
Turbodyne Technologies Inc., Carpinteria Calif., announced the
following update on the bankruptcy sale of substantially all of the
assets of its subsidiaries, Pacific Baja Light Metals Corp., Baja
Pacific Light Metals Inc. and Optima Wheel Inc. (collectively, the
debtor), according to a newswire report. On Dec. 14, the bankruptcy
court approved the sale of substantially all assets to an assignees of
Hawthorne Partners. The order entered by the court provided that the
buyer assume up to $1.2 million of liabilities arising from the debtor's
obligations to Mexican governmental agencies and utility providers. The
order also provided that the buyer would not be responsible for the
debtor's obligations under any equipment lease, except to the extend the
buyer assumed such lease. The buyer is also not responsible for the
debtor's obligations in connection with any employment or labor
agreements or any pension plan of the debtor.
Omega Takes Possession of RainTree Healthcare's Nursing
Homes
Omega Healthcare Investors Inc., a real estate investment
trustee investing in and providing financing to the long-term care
industry, announced that it has taken possession of 30 nursing homes and
assisted living properties operated by RainTree Healthcare Corp,
Phoenix, which provides health care services to about 2,400 residents in
Indiana, Alabama, Texas, Colorado and Arizona. RainTree filed for
bankruptcy protection on Feb. 29 and moved to transition lease
properties to Omega in connection with proceedings in bankruptcy court.
RainTree operated 35 facilities, and 1999 revenues exceeded $100
million. Omega has contracted with Vencor Operating Inc., Louisville,
Ky., to manage the properties and supervise direct patient care.
Tyson Foods Makes Announcement on Earning
Tyson Foods Inc., Springdale, Ark., stated yesterday that it
will not reach analyst consensus earning estimates of $.27 per share for
the second quarter ending April 1, 2000 due to increased reserves
resulting from the bankruptcy filing by AmeriServe Food Distribution
Inc., weaker than anticipated domestic markets for its products and
weather-related losses. According to a newswire report, Tyson Foods
expects earning to range from $.14 to $.16 per share. AmeriServe filed
chapter 11 on Jan. 31 and is a significant distributor to fast food and
casual dining restaurant chains. Tyson is a major supplier to several
AmeriServe customers. CEO Wayne Britt said, 'I am very disappointed with
the arrangements which caused the AmeriServe situation. However, our
ultimate customers value our relationship and understand the problems
created by this potential loss.' Tyson Foods is the world's largest
fully integrated producer, processor and market of chicken and
poultry-based food products.
IBJ Whitehall Business Credit Provides Financing to
HLMDesign
IBJ Whitehall Business Credit Corp., New York, announced this
week that it has provided $20 million in senior debt financing to
HLMDesign Inc. to refinance existing debt and to provide borrowing
capacity for future acquisitions, according to a newswire report.
Centura Investment Bank, Charlotte, N.C., served as financial advisor to
HLM in connection with the financing. Charlotte-based HLM, founded in
1962, specializes in providing architectural, engineering and planning
(AEP) services to clients in the health care, justice, education,
research/technology, corporate and hospitality markets.
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