* The Tribune continues its coverage of the federal bankruptcy trial of a nursing home chain once partly owned by Bruce Rauner’s GTCR…

[Edgar Jannotta], who was both a partner at GTCR and a director of Trans Healthcare, also testified about communications concerning Trans Healthcare he had in 2004 and 2005 with other GTCR partners on an investment committee that included Rauner, now the Republican candidate for Illinois governor. Rauner is not a defendant in the Florida lawsuit, though GTCR and Jannotta are defendants. Rauner and Jannotta have both retired from the equity firm.

In those exchanges, Jannotta warned the investment committee that Trans Healthcare’s finances were so shaky it might have to file for bankruptcy protection. Instead, Trans Healthcare was sold in a pair of complicated transactions that plaintiffs’ attorneys say cleaved off the chain’s liabilities into a new firm that effectively had no assets. […]

In his testimony, Jannotta acknowledged that the sale of Trans Healthcare that GTCR took part in did not contemplate any eventual damage award payments to the estates of nursing home residents. He said that was because new companies created in the transaction were to handle any claims. GTCR was not involved with those new companies, which bore variations of the name Fundamental.

“Part of the consideration of the sale was … the Fundamental entities were taking responsibility for those liabilities,” Jannotta testified in the deposition.

* Meanwhile, Kurt Erickson has a piece today about how at least a dozen former Rauner companies have declared bankruptcy. One example…

Another company owned by GTCR, Graceway Pharmaceuticals, also butted heads with federal regulators over one of its key products— a medicine designed to treat skin cancer.

The company was unsuccessful in keeping its patent on Aldara, allowing cheaper generic versions to hit the market. Although cancer patients had access to less expensive options, that meant the company’s revenue plummeted from $320 million to $52 million.

“The loss of exclusivity with respect to Aldara, and the resulting decrease in net sales, is the primary factor that has led” to the bankruptcy, noted Gregory C. Jones, Graceway’s executive vice president of strategic development.

As the company was heading into bankruptcy in 2010, GTCR took $9 million in cash out of the company. The company later was forced to pay more than $6 million of that money back.

Kinda blatant, no?

*** UPDATE 1 *** The Rauner campaign disputes the story…

Rich -

Unsurprisingly, the facts on Graceway are not as presented by the Freedom PAC folks. The $9 million distribution was a TAX distribution, which was required under Graceway’s Limited Liability Company Agreement. The investment into Graceway was structured in a way that had taxable earnings flow through the holding company. The tax distributions are then remitted to state and federal governments. Notably, Graceway did not make any discretionary distributions in 2010.

Simply put, the tax distributions would have gone directly into the U.S. treasury.

The $9 Million Distribution From Graceway In 2010 Was A Tax Distribution, To Pay Income Taxes On The Company’s Earnings. “The 2010 tax distribution totaling $9,127,166.00 was made on March 18, 2010. The Debtors made no further distributions to the Members following this distribution.” (“DEBTORS’ MOTION FOR AN ORDER AUTHORIZING THE DEBTORS TO ENTER INTO A SETTLEMENT AGREEMENT WITH GTCR,” In re: GRACEWAY PHARMACEUTICALS, LLC, United States Bankruptcy Court For The District Of Delaware, Case No. 11-13036 (PJW), 2/14/12, p.4)

· Graceway Did Not Make Any Discretionary Distributions In 2010. (“DEBTORS’ MOTION FOR AN ORDER AUTHORIZING THE DEBTORS TO ENTER INTO A SETTLEMENT AGREEMENT WITH GTCR,” In re: GRACEWAY PHARMACEUTICALS, LLC, United States Bankruptcy Court For The District Of Delaware, Case No. 11-13036 (PJW), 2/14/12, p.4)

*** UPDATE 2 *** Illinois Freedom PAC…

Rich,

The Rauner campaign’s statement was highly misleading. The fact that it was a tax distribution does not change a thing. It just means that GTCR obtained $9 million from an insolvent company to pay their own tax liabilities on their investment in Graceway before creditors could state their claims to the money. This is why a judge ordered them to pay back $6 million of the money they took from the company, including $4.5 million to first lien creditors. It was still a greedy and heartless maneuver because Graceway was cutting jobs and slashing benefits.

It’s telling that the Rauner camp did not deny that GTCR

· Acted to protect its own profits over the interests of cancer patients,

· Cut 130 jobs

· Slashed employees’ health care and retirement benefits, and

· Took $9 million from a failing company, most of it which it was forced to repay.

* The full oppo report by the union-backed Illinois Freedom PAC…

THE SAME MONTH GTCR-OWNED GRACEWAY PHARMA LAID OFF 40% OF ITS WORKFORCE AND CUT BENEFITS, GTCR PAID ITSELF $9 MILLION AND WAS FORCED TO PAY BACK $6 MILLION OF THAT DURING BANKRUPTCY

GTCR founded Graceway Pharmaceuticals in 2006, committing $200 million to develop the company. In 2010, Graceway’s sales started to plummet, and the company laid off 40% of its workforce and cut benefits including vision care and 401k matching for its remaining employees. The same month that these moves were announced, GTCR gave itself a $9.1 million distribution from the company. Shortly after, Graceway began defaulting on its debts and went into bankruptcy. During the bankruptcy proceedings, GTCR was ordered to pay back $6 million of the 2010 distribution it received from Graceway, because the company was already insolvent when the payment was made.

GTCR FOUNDED GRACEWAY PHARMACEUTICALS IN 2006

GTCR Founded Graceway Pharmaceuticals In 2006. “Founded in 2006 by King Pharmaceuticals Inc. chief executive Jefferson J. Gregory and private equity firm GTCR Golder Rauner LLC, Graceway focuses on acquiring branded prescription products and licensing products. The company specializes in dermatology, respiratory and women’s health products. [Daily Deal, 9/29/11]

2006: GTCR Said It Would Commit $200 Million To Develop Graceway. “In 2006 the firm said it would commit up to $200 million to develop Graceway. GTCR did not respond to a call for comment.” [Daily Deal, 9/29/11]

July 2011: GTCR Remained The Sole Sponsor Of Graceway Pharmaceuticals. “Graceway brought in Lazard as of at least April to help look at its options. GTCR remains the sole sponsor of the business.” [Daily Deal, 7/12/11]

December 2011: Graceway Pharmaceuticals Sold To Medicis Pharmaceutical Group For $455 Million. “Graceway will fund its plan with the proceeds from the $455 million sale of its assets to Medicis Pharmaceutical Corp., which closed Dec. [The Deal Pipeline, 4/12/12]

GRACEWAY LAID OFF 40% OF ITS WORKFORCE AND CUT BENEFITS DUE TO LACK OF SALES

March 2010: Graceway Laid Off 130 Of Its 323 Employees. “In federal court filings Tuesday, Graceway revealed that it will lay off 130 of its 323 employees, and that it is ‘taking drastic steps to avoid bankruptcy.’” [Bristol Herald Courier, 3/25/10]

March 2010: Graceway “Lopped Off 60% Of Its Payroll; Cancelled Matching Contributions To Its 401K Program; And Eliminated Subsidies For Vision Coverage And Dependent Life Insurance.” “Bellamy confirmed Tuesday that Graceway was dismissing about 40 percent of its employees, but refused to provide any further details about how many people and what positions were affected. Those details were spelled out in court filings later Tuesday: Graceway has lopped off 60 percent of its payroll; cancelled matching contributions to its 401k program; and eliminated subsidies for vision coverage and dependent life insurance.” [Bristol Herald Courier, 3/25/10]

March 2010: Graceway Senior VP Of Human Resources: “Graceway’s Entire Workforce Is Distracted, Unsettled And In Poor Spirits.” “In a declaration supporting Graceway’s bid for an injunction against Nycomed, a senior executive painted a grim picture of the workplace environment. “Graceway’s entire workforce is distracted, unsettled, and in poor spirits,” according to the declaration by John William Musick, senior vice president for human resources. “Their work performance and productivity has suffered dramatically. Rather than devoting their time to researching and developing new products or marketing and selling existing products, they are worrying about keeping their jobs and beginning to look for new jobs.” [Bristol Herald Courier, 3/25/10]

Graceway Pharmaceuticals Laid Off 40% Of Its Workforce. “In May 2010, Graceway laid off 40% of its workforce.” [Daily Deal, 9/29/11]

THE SAME MONTH AS THE ANNOUNCED LAYOFFS AND BENEFIT CUTS, GTCR PAID ITSELF $9.1 MILLION FROM GRACEWAY

March 2010: Graceway Made A $9.1 Million Distribution To GTCR “When The Company Was Already Insolvent.” “In March 2010, Graceway Holdings made a $9.1 million distribution that the debtors say was made when the company was already insolvent, according to the motion. Graceway said that because of this, the funds could be subject to potential avoidance or recovery actions under the Bankruptcy Code. GTCR disputed this, according to the motion.” [Law360, 2/14/12]

GRACEWAY REPEATEDLY DEFAULTED ON ITS DEBT AND S&P CUT ITS BOND RATING

Graceway Owed Over $430 Million In First-Lien Debt And Defaulted On The Debt In 2010. “Further injuring the drug company was the large amount of first-lien, second-lien and mezzanine debt issued on May 3, 2007. As of Wednesday, Graceway owed $430.7 million to first-lien lenders led by Bank of America NA, $330 million to second-lien lenders and $81.4 million to mezzanine lenders. Graceway also owes about $30 million to unsecured trade creditors. The first-lien notes include a $650 million term loan due May 3, 2012, as well as a $30 million revolver, $10 million swing line loan and up to $10 million in letters of credit. Graceway defaulted on the first-lien debt in 2010 but cured the default through an Oct. 15, 2010, agreement.” [Daily Deal, 9/29/11]

Standard & Poors Downgraded Graceway’s Credit Rating To SD From B- After Graceway Defaulted On Second Lien Debt On August 31, 2010. “In September 2010, Standard & Poor’s rating service lowered Graceway’s corporate credit rating to SD from B- after the business failed to make an Aug. 31, 2010, interest payment on the second-lien term loan.” [Daily Deal, 9/29/11]

2011: GRACEWAY PHARMACEUTICALS FILED FOR BANKRUPTCY LISTING UP TO $1 BILLION IN DEBT

September 2011: Graceway Filed For Bankruptcy. “Graceway filed the bankruptcy proceedings Sept. 29 in U.S. Bankruptcy Court in Wilmington, Del. In the bankruptcy court documents, Graceway listed an estimated $1 billion in debt and some $500 million in assets.” [Bristol Herald Courier, 10/19/11]

In Its Bankruptcy Petition, Graceway Listed Assets Of $100-$500 Million And Debt Of Between $500 Million To One Billion Dollars. “In its petition, Graceway listed assets of $100 million to $500 million and liabilities of $500 million to $1 billion. It wasn’t clear how much GTCR has invested in the company to date.” [Daily Deal, 9/29/11]

GTCR WAS ORDERED TO PAY BACK $6 MILLION OF THE $9 MILLION IT TOOK FROM THE COMPANY IN 2010

GTCR Was Ordered To Pay $6 Million To Graceway’s Debtors Because Of Allegations GTCR Recouped $9.1 Million In Distributions From Graceway In 2010. “The new disclosure statement and plan outline a settlement with Graceway equity sponsor GTCR Golder Rauner LLC. Under the settlement, filed Feb. 14, the Chicago private equity firm would pay $4.5 million to the first-lien lenders and $1.5 million to the debtor’s estate. The settlement stems from allegations that members of GTCR had recouped about $9.1 million from distributions from Graceway in 2010.” [The Deal Pipeline, 4/12/12]