UPDATE 1-Regulators, markets challenge Manor Care buyout

(Recasts; adds share price, hearing details)

By Al Yoon and Jonathan Keehner

NEW YORK, Dec 14 (Reuters) - Key funding for Carlyle Group's $6.3 billion leveraged buyout of U.S. nursing home giant Manor Care Inc. HCR.N has been pushed to the first quarter of 2008, delayed from initial investor expectations amid sour markets and regulatory delays.

The deal has drawn organized protests from consumer and labor groups fearing that pressure for greater profits will worsen care for senior citizens and conditions for employees. In West Virginia, a state authority on Friday will reconsider its prior approval of the deal after a request from a union.

"The hope is that the Health Care Authority will reexamine the terms of this deal," said Sherri McKinney of the Service Employees International Union, which requested the review.

Manor Care has seven facilities in West Virginia, according to the company, and does not intend to close the buyout without approval from all states where it operates, a spokesman said.

In addition to regulatory woes, the credit crunch born from bad U.S. residential loans has taken a bite out of demand for commercial mortgage-backed securities, which will be used to raise $4.6 billion for the Manor Care buyout.

The issue, which some investors expected this quarter, should now be done by March, according to an investor briefed by lead underwriter JPMorgan Chase & Co.

A spokesman for the bank declined to comment on the offering.

In an October filing, Manor Care had said that it hoped to close the deal with Carlyle by Nov. 7. But the company on Nov. 8 said it was still working toward a "timely" closing, subject to regulatory consents and approvals.

Shares of Toledo, Ohio-based Manor Care, which were trading just below Carlyle's $67 offering price in early November, dropped as low as $61.44 this week. The stock rose 1.9 percent on Friday to $63.19.

During the hearing, a union representative asserted that that private equity control of nursing homes has been detrimental to the quality of care. But those concerns were assailed during questioning, including how the union supported its claims.

The West Virginia hearing on Friday is "very abnormal," Manor Care spokesman Rick Rump told Reuters.

"The fact that they stayed their decision is unprecedented in West Virginia," said Rump. "It's political. The union asked for this and we feel they've bowed to some pressure."

Licenses needed to be transferred in 32 states, Rump said. "We don't want to close without doing that."

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