We are putting Skilled Healthcare Group under review following an unfavorable verdict regarding a medical malpractice claim from a jury in Humboldt County, Calif. While firms in the health-care industry regularly face a significant number of litigation claims, the harsh verdict in the Humboldt County case may prove especially damaging for Skilled Healthcare.
In the first phase of deliberations (punitive damages are still pending), the jury awarded the plaintiffs $613 million in statutory damages and $58 million in restitutionary damages. This verdict represents the maximum amount of damages allowed by health and safety codes. Skilled Healthcare has vigorously denied allegations of nurse understaffing and plans to appeal this decision. While the final judgment has yet to be announced, we expect these hefty damages to meaningfully lower our fair value estimate, especially considering the firm's substantial liquidity constraints (Skilled Healthcare ended the first quarter with only $2 million in cash and equivalents on its balance sheet and currently has $94 million of borrowing capacity available under its revolving credit facility).