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Bankrupt Sun Healthcare Group Inc., one of five nursing home chains that filed for Chapter 11 after Medicare reimbursements were slashed, could be the third to emerge over the past 12 months after a Delaware judge confirmed its reorganization plan Tuesday. Judge Mary Walrath in the U.S. Bankruptcy Court in Wilmington, Del., approved the plan after Sun got final approval from the federal government for an $11 million settlement involving Medicare overpayments made to the company, said its lawyer, Michael Walsh of Weil, Gotshal & Manges. He said that Sun expects to garner about $150 million in exit financing from Heller Financial, a unit of GE Capital Corp., and Citibank N.A., a unit of Citigroup Inc., and hopes to emerge from Chapter 11 by the end of this month. Currently, affiliates of both companies are part of Sun’s $150 million debtor-in-possession loan syndicate. Heller Healthcare Finance Inc. committed $45 million to the DIP while Citicorp signed on for $26.25 million. The CIT Group/Business Credit Inc., now a unit of Tyco International Ltd., led the DIP with a $56.88 million commitment. LaSalle Business Credit Inc. provided $21.88 million. “The exit financing is under way and, while we don’t have a formal commitment letter, we’re skipping that process because we’re very close and just have to finish the documentation,” Walsh said. “It doesn’t need to be approved by the court, however, and we plan to emerge by the end of the month.” Monday’s confirmation hearing was continued until Tuesday as Sun sought final approval on its settlement with the Center for Medicare and Medicaid Services that calls for a $1 million cash payment by Sun and a $10 million note payable by the company over five years, Walsh said. All the other objections were either resolved or withdrawn at the initial hearing before Walrath on Monday. Albuquerque, N.M.-based Sun revised its reorganization plan in December so that holders of $406.2 million in senior subordinated notes would get 2 percent of the post-bankruptcy entity’s common stock. Those holders were initially cut out from any distribution. A bank group led by Bank of America Corp. is scheduled to get between 88 percent and 92 percent of the equity, while unsecured creditors that are senior to the noteholders will get between 8 percent and 10 percent of the stock to satisfy their $14 million claim. Five of the 10 largest healthcare chains in the U.S. filed for Chapter 11 bankruptcy protection between 1999 and 2000 after Medicare reimbursements were slashed an average of 21 percent under federal legislation, and Sun was among them. In the aftermath of those bankruptcy filings, more than 1,600 of the 17,000 skilled nursing facilities in the U.S. were in Chapter 11 after daily Medicare payments were cut back from $386 to $286, or 26 percent. Two of the bankrupt healthcare companies emerged before Sun — Genesis Health Ventures Inc. of Kennett Square, Pa., on Oct. 2, and Vencor Inc. in April (now called Kindred Healthcare Inc. and based in Louisville, Ky.) The other two companies still in Chapter 11 proceedings are Mariner Post-Acute Network Inc., which filed Jan. 18, 2000, and Integrated Health Services Inc., which filed Feb. 2, 2000. Both cases are in Wilmington. Sun operated about 580 facilities in the U.S., U.K., Spain, Germany and Austria before filing for bankruptcy Oct. 14, 1999. It has scaled down to 260 operations during its 28-month struggle with Chapter 11. Sun listed $1.8 billion in assets and $2.1 billion in debt when it made its filing along with 186 affiliates. Barry Ridings of Lazard advised on Sun’s restructuring. Walsh, Paul Basta, Troy Cady and Deborah Dandeneau are Sun’s lawyers at Weil, Gotshal in New York, while Mark Collins and Russell Silberglied are co-counsel at Richards, Layton & Finger in Wilmington. Scott Hazen, William Silverman and Jenette Barrow-Bosshart represent Sun’s unsecured creditors at Otterbourg, Steindler, Houston & Rosen in New York while Mark Minuti and Tara Lattomus are local counsel at Saul Ewing in Wilmington. Copyright (c)2002 TDD, LLC. All rights reserved.

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