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Petersen operates 90 facilities in Illinois, Missouri, and

Iowa

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Company was hacked, also faces fallout from UnitedHealth ( UNH )

hack

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Loan defaults caused foreclosures at 21 properties

By Dietrich Knauth

NEW YORK, March 21 (Reuters) - Petersen Health Care, one

of the largest nursing home operators in the U.S., filed for

bankruptcy on Wednesday after cyberattacks and defaults on

government-backed loans worsened the company's long-standing

financial challenges.

The Peoria, Illinois-based company filed for Chapter 11

protection in Delaware bankruptcy court with over $295 million

in debt, including $45 million owed under healthcare facility

loans insured by the U.S. Department of Housing and Urban

Development.

Petersen's failure to make payments under the HUD-insured

loans caused its lenders to initiate foreclosure actions and

place some of its properties into receivership, according to

court documents, further disrupting the company's day-to-day

operations, according to Petersen's court filings.

Petersen said it would continue operations normally while in

bankruptcy, while seeking to restructure its debts.

"We will emerge from restructuring as a stronger company

with a more flexible capital structure," chief restructuring

officer David Campbell said in a statement. "This will enable us

to continue as a first-choice care provider and a reliable

employer for our staff."

Petersen operates over 90 nursing homes in Illinois,

Missouri, and Iowa, with nearly 4,000 employees, capacity for

6,796 residents, and over $339.7 million in revenue in 2023.

The company's elderly care includes assisted living, skilled

nursing care, respite care, memory care, hospice, local medical

transportation, radiology, and pharmacy services. Petersen also

provides care to people with intellectual and developmental

disabilities in two of its facilities.

The company faced several long-term challenges before the

cyberattacks and defaults on the HUD loans, including a

long-term decline in demand for nursing homes in rural areas,

increased competition for qualified nursing staff after the

COVID-19 pandemic, and a backlog of unreimbursed Medicaid costs

that stemmed from a 2015-2017 budget impasse in the state of

Illinois.

Petersen had attempted to restructure its debt, but it was

derailed by a ransomware attack in October 2023 that forced the

company to replace its servers, email addresses, and software.

The attack caused the company to lose a significant amount of

its business records and caused "incredible difficulty and

delay" in its attempts to bill customers and insurers, according

to court filings.

A later ransomware attack on UnitedHealth Group's ( UNH ) Change

Healthcare, a major payor for Petersen, further exacerbated

Petersen's financial difficulties. Change Healthcare has slowed

or suspended payments to providers, including Petersen, as it

investigates the attack, Petersen said.

In part due to the cyberattacks, Petersen missed payments on

its HUD loans, causing lenders to place 21 of its locations into

receivership. Petersen has worked to transition those locations

to the receiver's control but has struggled to keep up with

"demand-after-demand from the receiver" while also working to

address its larger debt issues, according to Petersen.

Petersen has secured a $45 million bankruptcy loan, which it

will use to pay operating expenses during its Chapter 11 case.

The case is In re: SC Healthcare Holding LLC, U.S.

Bankruptcy Court for the District of Delaware, No. 24-10443.

For the debtor: Greg Gartland, Carrie Hardman and

Joel McKnight Mudd of Winston & Strawn, among others.

Read more:

US health department opens probe into UnitedHealth ( UNH ) hack