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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 refused Manor Care's request for immediate approval of the buyout after a daylong hearing held to reconsider its initial consent.

"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.

Toledo, Ohio-based Manor Care has seven facilities in West Virginia, according to the company, and does not intend to close the buyout without state approvals, a spokesman said.

It owned 335 skilled care or assisted living centers across the U.S. at the end of the end of 2006, its annual report shows.

In addition to regulatory woes, the credit crunch, born from defaults in the U.S. home loan market, 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 debt 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 November 7, but the company on November 8 said it was still working toward a "timely" closing, subject to regulatory consents and approvals.

During Friday's hearing, union witnesses asserted that private equity control of nursing homes had been detrimental to the quality of care.

Manor Care witnesses countered union claims that the treatment of Medicaid patients would be set aside in favor of more lucrative customers, or that staffing cuts would produce greater profit.

The West Virginia Health Care Authority pondered the fate of the seven nursing homes should it deny licensing. The outcome for West Virginia would be uncertain, but Manor Care would not allow that to "derail" any transaction, said Richard Parr, Manor Care's general counsel.

Shares of Manor Care, which traded just below Carlyle's $67 offering price in early November, dropped as low as $61.44 this week. The stock rose 1.8 percent on Friday to $63.13.

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

"The fact that they stayed their decision is unprecedented in West Virginia," said Rump, who added that licenses needed to be transferred in 32 states. "It's political. The union asked for this and we feel they've bowed to some pressure."

The West Virginia authority requested briefs from the union and Manor Care by early January.

MARKET JITTERS

Equity investors have been spooked by a market that has seen the recent collapse of several deals, including the $25 billion buyout of student lender Sallie Mae () and the $4 billion takeover of equipment rental company United Rentals Inc

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"Frankly, all buyouts are dangerous," said one arbitrage trader. "Manor Care is one of the safer ones because of its stable cash flows, but you can't ignore the turmoil being caused by politicians."

Banks committed to the financing must also negotiate terms under worsening conditions across global credit markets, where liquidity has evaporated in the face of continuing losses in U.S. residential mortgage securities.

Year-end funding pressures caused by banks shoring up balance sheets with cash and other ultra-liquid assets are also headwinds for debt sales.

What's more, investors still sanguine about commercial mortgage backed securities are shying away from health-care-related issues, whose volatile nature adds risk at a time when they want less, analysts said.

"It has been volatile, so trying to get people to focus on pricing a new deal is problematic" for any issuer, said Kevin Cronin, chief investment officer at Boston-based Putnam Investments, which manages $185 billion.

Manor Care in November had raised about $1 billion of the $1.6 billion "mezzanine" portion of the CMBS, according to Reuters Loan Pricing Corp.

(Reporting by Al Yoon and Jonathan Keehner)