Potential $4 Billion Brookdale Buyout Put on Hold

The buyout of one of the nation’s largest home health care providers by a Beijing-based real estate and leisure firm has reportedly been put on hold, according to the Financial Times.

Brentwood, Tennessee-based senior living provider Brookdale Senior Living (NYSE: BKD) could be sold for as much as $4 billion, although analysts have long speculated on the total value of the company’s operations and massive real estate portfolio.

Now, Zhonghong Zhuoye Group Co Ltd is having trouble securing financing for the acquisition of Brookdale, FT reported early Monday, citing unnamed sources. Zhonghong secured a Chinese bank for onshore and offshore loans, the two sources revealed. The offshore loan was approved by regulators, but the onshore loan has been held up.

Notably, Chinese regulators have not rejected the onshore loan—but, because the bank now believes Zhonghong to be “high risk,” it has chosen to place that part of the lending on hold, a source told FT.

Following an outflow of capital from Chinese companies to overseas investment targets, Chinese regulators have heightened the level of scrutiny on outbound acquisitions since June, resulting in a slowdown in dealmaking. Additionally, the banking regulator has requested that banks evaluate their level of exposure to certain firms, and the foreign exchange watchdog is reportedly looking into the utilization of fake collateral for guaranteeing offshore loans.

In response, global banks have lessened their exposure to some high-profile groups, and Chinese banks have been less liberal in their credit assessments. China is scheduled to host a sensitive political meeting at the end of the year, in which the Communist party’s leadership for the next five years will likely be revealed. Bankers have implied that several overseas deals are on hold until the end of the meeting, which could usher in fresh policy directives.

A $4 billion transaction “would have been a coup for the beleaguered company,” Stifel’s Chad Vanacore wrote in an analyst note on Monday. In the absence of a buyout deal, Stifel believes Brookdale’s shares could fall into the $10 to $12 range, “as investors lose faith in valuation and the industry remains at least a year from turnaround in fundamentals,” Vanacore wrote.

In the past, Brookdale’s shares have generally found support at about $12, Vanacore added.

Other analysts, meanwhile, had previously suggested it made sense for a Chinese group to purchase Brookdale, given the large amount of foreign capital that has been targeting U.S. real estate in recent years, and the number of China-based buyers that have lately been chasing senior housing, Jefferies analyst Brian Tanquilut told Senior Housing News in May.

Beijing, China-based Cindat Capital Management Ltd, for instance, is reportedly considering two investments of about $1 billion each into U.S. senior housing in 2017.

In March, the investment banking firm predicted the probability that Brookdale would be sold between then and the end of 2017 was more than 50%.

Brookdale shares were down 7% during trading following the reports Monday. In response to a request for confirmation on the report, a Brookdale spokeswoman stated that the company does not comment on market speculation or rumors.

Written by Mary Kate Nelson

Photo credit: “Don’t Walk” by Peter Daniel, CC BY-SA 2.0