A Genesis HealthCare bankruptcy judge on Tuesday approved the $996 million sale of 01 West State Street, after a reopened auction, rejecting objections over insider ties while citing a fair, arm’s-length process.
Judge Backs Second Auction, Rejects Collusion Claims
Genesis HealthCare Bankruptcy Judge Stacey Jernigan approved the sale Tuesday evening following more than three hours of testimony and a nearly two-month auction process that included a rare second round of bidding.
Genesis HealthCare, once among the nation’s largest skilled nursing operators, filed for Chapter 11 protection last July after shrinking to 175 facilities across 17 states. The sale had been shadowed by allegations of insider dealing raised by rival bidders and attorneys representing creditors.
In a bench ruling, Jernigan said she was persuaded the reopened auction was conducted “at arm’s length” and without collusion. She approved 101 West’s $996 million bid, narrowly topping a $991 million backup offer from former lead bidder Genie 3.
“Bankruptcy is always imperfect,” Jernigan said. “I cannot imagine a process that would bring in more integrity than all of this combined.”
Ownership, Financing, and Insider Questions Surface
Questions centered on the makeup and financing of 101 West, represented in court by Chief Financial Officer Shawn Zhou. Zhou testified that 101 West holds a 50 percent stake in a joint venture known as Bold Quail and would assume the remaining Genesis-held equity as part of the sale, valuing that portion at about $57.5 million.
Other bidders did not have access to those assets, an issue raised by objectors. Zhou testified under oath that Genesis investors Joel Landau and David Gefner were not insiders in 101 West and played no role in the transaction. A previous Landau-backed bid, under the name CPE, was rejected by the court earlier.
John Anthony, an attorney representing 345 clients with personal injury and wrongful death claims against Genesis, pressed Zhou on financing sources. Zhou acknowledged that 101 West’s owners had explored borrowing $35 million from Daryl Hagler, the owner of Centers Health Care, who faces state-led nursing home fraud cases in New Jersey and New York.
Zhou said the group could “easily replace” that loan if necessary. Jernigan did not condition the sale on restrictions barring Landau or Gefner from future involvement, despite requests from rival bidders.
Objections Weighed as Case Moves Toward Closing
The hearing also examined an alternative proposal from CPE to retain control of Genesis through a reorganization outside the auction. Genesis’ restructuring committee declined to pursue the option, and concerns were raised about whether it violated Genesis HealthCare bankruptcy solicitation rules.
CPE’s attorney denied wrongdoing, but Meredith Kippis, representing the U.S. Trustee, said her office had seen troubling statements in a recent filing and may seek court review. Jernigan noted that the CPE proposal still included legal releases she had already struck from any approved sale.
Olumie Capital urged the court to reopen bidding again, arguing that auction scoring failed to account for quality. Jernigan rejected that request, citing oversight by an independent mediator, a monitor, a judge-appointed broker, and the U.S. Trustee.
Dan Simon, a Genesis HealthCare bankruptcy attorney, said approval of the sale — with a final asset purchase agreement expected by Thursday — would allow the company to begin transitioning its heavily regulated nursing home operations.
Zachary Hemenway, counsel to the creditors committee, said certainty around the closing was critical. Anthony welcomed the outcome, estimating recoveries for his clients would rise from about seventeen cents per dollar under the first auction to roughly thirty cents under the approved deal.
The sale now hinges on 101 West securing financing and meeting remaining conditions. Jernigan said the court could still redirect the sale if those requirements are not satisfied.
