Venetian Care & Rehabilitation Center - Chapter 11 Case Summary

Business Description

Headquartered in Norwood, NJ, Venetian Care & Rehabilitation Center, LLC ("Venetian Care"), along with its Debtor affiliates (collectively, the "Debtors" or the "Company"), is part of a family-owned and operated healthcare organization that historically provided clinically sophisticated post-hospital care, rehabilitation, and nursing services through skilled nursing facilities throughout New Jersey.

• Until the sale of substantially all of their assets in or around April 2025, the Debtors operated eight licensed skilled nursing facilities offering nursing care, rehabilitation, healthcare services, and assistance with activities of daily living.
• Drawing on more than 35 years of industry experience, the Debtors delivered a full range of services in settings designed to respect personal dignity, with several facilities recognized among the best in New Jersey, including placement on U.S. News & World Report's "Best Nursing Homes" lists.

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Corporate History

The Debtors are limited liability companies formed in the state of New Jersey and operated as part of the Windsor Healthcare portfolio, a family-owned and operated organization providing post-hospital care, rehabilitation, and nursing services across the state.

COVID-19 Disruption and Cash Injections

• Beginning in or around March 2020, the onset of the COVID-19 pandemic caused each of the Debtors to operate at significant losses, with liabilities materially exceeding assets.
• To sustain operations, manage cash flow challenges, ensure continuity of payroll, and stabilize the business until a return to profitability could be achieved, members of the Debtors injected significant cash loans into the companies.
• By 2024, despite these efforts, the Debtors were unable to recover or continue paying debts as they came due.

Sale of the Windsor Healthcare Portfolio

• Following the deterioration of operational and financial performance, the Debtors' owners elected to sell the Windsor Healthcare portfolio.
• By approximately April 2025, the Debtors' assets and portfolio were sold to the New Operators for approximately $12.5 million pursuant to various asset purchase agreements.
• In a related transaction, affiliated entities that owned the real property associated with each facility (the "Propcos") sold that real property to entities affiliated with the New Operators. The Propcos are not debtors in these Chapter 11 Cases.

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Operations Overview

The Debtors historically ran daily operations for eight licensed skilled nursing facilities in New Jersey, providing nursing care, rehabilitation, healthcare services, and assistance with activities of daily living to residents. The facilities are regulated by the New Jersey Department of Health.

Post-Sale Transitional Operations

As of the Petition Date, the Debtors no longer operate any of the facilities, do not own or lease any property, and have no employees. Following the April 2025 sale, the Debtors' role has been limited to cooperating with the New Operators and acting as a conduit through which the New Operators conduct business.

• Pursuant to the agreements between the Debtors and the New Operators, the Debtors:
  • Maintain contracts with vendors under their respective licenses;
  • Collect and distribute revenues generated from the New Operators' operations of the facilities; and
  • Hold payments in trust/escrow for the New Operators.
• All profits and losses associated with operating the facilities flow directly to the respective New Operator.

CHOW Approval Process

• As part of the transition of operations, the New Operators are required to obtain Change of Ownership ("CHOW") approvals from the State of New Jersey, which will allow them to operate the purchased facilities under their own licenses and enable the Debtors to fully extract themselves from the flow of funds related to the facilities.
• As of the Petition Date, each of the New Operators has applied for CHOW approvals with respect to all eight facilities and has been cooperating with the State of New Jersey. All CHOW applications remain pending, with no clear timeline for approval.
• While the applications are pending, the New Operators continue to operate the facilities under the Debtors' existing licenses.

Payor Mix

The Debtors' payors presently include the government (Medicare and Medicaid), private insurance, and self-paying residents.

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Prepetition Obligations

As of the Petition Date, the Debtors report unsecured claims in excess of $25 million, including approximately $11.1 million in funding advances owed to Change Healthcare Inc. (“CHC”). The Company’s prepetition capital structure is summarized below:

CHC Funding Agreement

• The Debtors are obligated under a Temporary Funding Assistance Program Agreement, dated March 20, 2024, with Change Healthcare Operations, LLC (the “CHC Funding Agreement”), pursuant to which CHC advanced $11,074,080.25 to the Debtors.
  • The funding was extended in response to the February 2024 cyber-attack on CHC, which prevented its parent UnitedHealth Group Inc. from processing payments and medical claims for healthcare providers and insurers. To mitigate the disruption, UnitedHealth Group advanced payments and no-interest loans to affected providers, including the Debtors.
  • CHC—a healthcare technology company providing revenue cycle management and payment processing services—was acquired in 2022 by Optum, Inc., a subsidiary of UnitedHealth Group, and historically generated a significant portion of the Debtors’ revenue.
  • The advances are repayable to CHC on a scheduled monthly basis from October 2025 through December 2026, including escalating payments and a final balloon installment of approximately $1.9 million due December 18, 2026.
• Because the Debtors’ change of ownership (“CHOW”) process in New Jersey has not yet been approved and the New Operators continue to operate under the Debtors’ licenses, CHC payments on account of services rendered by the New Operators flow into the Debtors’ bank accounts and are held in trust for the New Operators’ benefit.
  • On multiple occasions, CHC has withheld amounts properly owing to the New Operators to offset amounts owed by the Debtors under the CHC Funding Agreement (the “Prepetition Offsets”).
  • The Debtors expect to seek a ruling from the Court regarding the propriety of the Prepetition Offsets and anticipate that CHC will not attempt to exercise any such triangular offsets now that the automatic stay is in place.

General Unsecured Claims

• The Debtors estimate aggregate unsecured claims in excess of $25 million, comprised of:
  • Accrued and unpaid unsecured debt incurred in the ordinary course of business;
  • Unpaid amounts owed to vendors;
  • Claims for unpaid rent and other obligations under the Debtors’ leases; and
  • Earned but unpaid employee benefits, including pension plans qualified under the Employee Retirement Income Security Act of 1974.

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Events Leading to Bankruptcy

Impact of the COVID-19 Pandemic

• Like many of their peers in the senior living and long-term care industry, the Debtors’ business was devastated by the COVID-19 pandemic, which transformed senior living facilities into an epicenter of mortality due to residents’ age, frailty, and communal living conditions.
  • Significant resident mortality drove a sharp contraction in admissions and occupancy, with occupancy levels declining by approximately 33% and producing a meaningful five-year revenue decline.
  • The pandemic simultaneously inflated operating costs, with the Debtors incurring substantially higher expenses tied to personal protective equipment, staffing, testing and compliance protocols, and infection control measures.

Medicaid Reimbursement Delays and Stagnant Rates

• As nursing home operators heavily dependent on Medicaid as a primary revenue source, the Debtors were materially impacted by reimbursement delays from the New Jersey Department of Human Services:
  • Processing backlogs, administrative errors, and delayed claim adjudications created prolonged gaps between the provision of services and receipt of payment, straining cash flow needed to meet payroll, medical supplies, utilities, and vendor obligations.
  • The Debtors frequently admitted patients who appeared to meet Medicaid eligibility criteria, only to discover months later—after care had been rendered and expenses incurred for staffing, medications, and therapies—that the patient was ineligible, resulting in non-recoverable costs.
• The Debtors were further challenged by New Jersey’s failure to adjust Medicaid reimbursement rates to keep pace with inflation:
  • Rates remained largely unchanged for the decade preceding the pandemic and were not adjusted again until 2023, when modest increases were implemented that nonetheless left New Jersey rates below the national market.
  • The New Jersey legislature has since been proposing legislation intended to bring reimbursement closer to a level that would reasonably compensate providers, though no such relief has been enacted.

Mounting Litigation Burden

• The Debtors were named in a substantial number of creditor and patient-related litigations that imposed severe financial and operational burdens, regardless of the underlying merits:
  • Defense costs—including attorneys’ fees and discovery expenses—diverted resources that would otherwise have supported patient care and facility operations.
  • Settlements and adverse judgments in certain matters resulted in significant monetary obligations that further compounded liquidity pressure.

Failed Recovery and Sale of Operations

• Despite multiple cash infusions from the Debtors’ members intended to restore profitability, the business had not recovered by 2024, with the Debtors continuing to operate at net losses and liabilities exceeding assets.
• Faced with these enduring headwinds, the Debtors’ owners elected to monetize the enterprise and apply sale proceeds to outstanding debt:
  • By April 2025, the Debtors’ assets and portfolio were sold to various operating companies (the “New Operators”), with each of the eight facilities now owned and/or operated by unaffiliated third parties.
  • Pending approval of the New Operators’ Change of Ownership (“CHOW”) applications with the New Jersey Department of Health, the New Operators continue to operate under the Debtors’ licenses, with proceeds flowing through the Debtors’ bank accounts—effectively rendering each Debtor a conduit for receipts from insurers, Medicare, Medicaid, and other sources held in trust for the New Operators.

Proposed Course of the Chapter 11 Cases

• Sale proceeds and pre-sale receivables proved insufficient to satisfy all creditor claims, prompting the Debtors to commence these Chapter 11 Cases to achieve a comprehensive resolution of outstanding indebtedness in a manner that maximizes stakeholder value.
  • The Debtors intend to leverage the breathing room afforded by Chapter 11 to halt the myriad creditor litigations, negotiate a reasonable Plan of Liquidation, and execute an orderly wind-down designed to maximize creditor recoveries.