Bankruptcy, sale could follow Michigan retirement village bankruptcy

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The fate of $ 52 million in municipal debt hangs in the balance as the Henry Ford Village, Inc. continuing care retirement community in Dearborn, Mich., Goes through a Chapter 11 restructuring triggered by growing debt, the COVID-pandemic. 19 and an inability to tap the market for short-term relief.

“We are in ongoing talks on the need for a financial reorganization due to our tight financial situation, industry-wide challenges and the impact of the COVID-19 pandemic,” said the village in a press release after the filing of Chapter 11 on October 28.

The village, which offers autonomous, assisted and skilled nursing units, sold $ 42 million in unrated bonds in 2008 and $ 14 million in 2017 through the Dearborn Economic Development Corporation.

Holders of bonds ceded on behalf of the 1,000-bed establishment will have their first default – with the agreement of the bondholders holding the majority of the principal outstanding – this month as HFV and bondholders negotiate a deal on the facility’s use of cash collateral to stay afloat. A bankruptcy court hearing on the matter is scheduled for November 23. Unallocated liquidity is promised to bondholders.

An interim order “allows the debtor to use funds on deposit in certain operating accounts for the operating expenses of the facility” with bondholders enjoying “a lien on substantially all of its post-claim assets, subject (in certain circumstances) to an exclusion for the payment of certain budgeted professional fees, ”the bond trustee UMB Bank NA said in a Nov. 5 filing.

“The terms of the interim order also require the debtor to hire an investment banker acceptable to the trustee on terms acceptable to the trustee” and “as part of the bankruptcy case and with the assistance of the investment banker , the debtor will explore strategic alternatives, including a possible sale of the installation ”, indicates the opinion.

The pandemic has taken a heavy toll on the balance sheet and reputation of retirement homes as they have struggled to cope with rising cases and deaths, skyrocketing costs of protective equipment individual and staff, and to requests for reimbursement of entrance fees as the elderly delay their move.

Signs of fiscal strain became evident in the spring, as HFV halted monthly transfers to the UMB and debt service reserves were drawn to fully cover the $ 1.9 million as of May 15. debt service payment. Last month, the trustee accelerated the repayment of obligations due to defaults under loan agreements. UMB informed the village that payment defaults had occurred due to its inability to honor monthly payments and refunds owed to former residents.

Henry Ford Village headed for bankruptcy with strain on its balance sheet due to the entry fee model adopted by past management companies. The fees ranged from $ 27,500 to $ 356,000 in January and part of it is reimbursable.

The pandemic hurt occupancy rates, the village struggled to attract new residents, and the facility was unable to complete a debt refinancing designed to provide relief. The pressures reached a boiling point last month when the CCRC faced a court order to honor a legal settlement of $ 800,000 on entry fees stemming from a class action lawsuit in 2014.

UMB was informed by the village in September of the impending payment of the settlement and opposed it as “an unauthorized use of the collateral securing the bonds and as a threat to the financial stability of the borrower,” said the trustee in a notice.

HFV, which is located at the site where Ford Motor Co. founder Henry Ford was born, asked a state court judge to delay the payment, but the court ordered the village of do it before October 29, which led to the chapter. 11 filing.

“Given the extent of the debtor’s entry fee reimbursement obligations (over $ 30 million) and a court order settling a class action lawsuit … the debtor was at risk of not being able to continue trading.” without the Chapter 11 filing, ”the UMB told bondholders in an October notice.

The inability to move forward with refinancing has also hurt. “The 2020 refinancing – like so many other things – has been rocked by the COVID-19 pandemic and has not been completed. Therefore, in addition to its endemic challenges, COVID-19 has become an additional and significant contributing factor undermining the financial viability of HFV, ”Facility Restructuring Director Chad Shandler said in bankruptcy documents. .

Shandler is senior general manager for corporate finance and restructuring at FTI Consulting, Inc. FTI was hired in August by the village as a financial advisor.

HFV seeks to secure a “more sustainable capital structure” and find a strategic or financial acquirer or sponsor to put the debtor on a “solid financial footing” and has “sufficient cash collateral to continue operations during a process. potential sales over the next thirteen years. weeks, but will likely require additional cash to complete this business, ”Shandler wrote.

UMB believes the Chapter 11 filing will provide transparency on HPV operations and a mechanism for a process to ensure that the facility continues to operate as it resolves its liquidity issues. “Accordingly, and with the agreement of the holders of a principal majority of the amount of the Bonds, the payment of the principal and interest due on the Bonds on November 15, 2020, will NOT be paid at that time. “

Bonds have long been on Municipal Market Analytics’ radar.

The facility was originally developed by Erickson Retirement Communities. HFV bought it in 1998, but Erickson continued to operate it. The company filed for bankruptcy in 2009. Redwood Capital Investments acquired Erickson and continued to operate HFV until 2010 when the ties were severed. Des Moines, Iowa, Life Care Services is the current management company, although it is also a creditor with fees owed to it.

The Erickson bankruptcy situation was resolved, but more general operating difficulties with breaches of covenants and a drawdown of reserves occurred a few years later, MMA said. The facility restructured part of the 2008s with this 2017 issue that delayed further liquidity issues until the end of 2019, according to MMA.

The offer statements note that the claims of bondholders may be greater than those of other creditors, but bankruptcy “may affect enforceability.” Under the bond documents, the bond trustee has been granted a first priority lien and security interest over substantially all of the debtor’s assets except those that fall in the “restricted” category. The bonds have a final maturity in 2044.

The filing automatically stays all proceedings against Henry Ford Village, including the class action lawsuit and payment obligations. The case – No. 20-51066 – was filed in the Eastern District of Michigan, South Division, and Judge Mark A. Randon is presiding. A hearing is scheduled for later this month and a status conference on December 14.


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