Florida CCRC Files for Chapter 11 Bankruptcy, Owes $62 Million

| July 10, 2013

A Florida continuing care retirement community (CCRC) has filed for Chapter 11 bankruptcy protection with $55 million of outstanding bond debt. The nonprofit owner, Life Care St. Johns, Inc. also owes $7.8 million in entrance fee refunds to its residents and attributes its financial position to the economic downturn.

Life Care St. Johns, Inc., the owner and operator of Glenmoor, a Jacksonville area CCRC, has about $55,615,000 of debt from Series 2006 Type A and Type B bonds.

The community, which has 159 independent living units, an assisted living center with 15 suites and 30 skilled nursing beds, failed to maintain its required debt service ratio and 90% occupancy requirement, according to court documents, following plans to modify the property in 2006.

The initial construction was financed in 1999 through $44.4 million in Series A fixed rate healthcare revenue bonds as well as $4 million of Series B adjustable rate healthcare revenue bonds and $27 million of Series C variable rate demand healthcare revenue bonds.

In 2006, the Series 1999 Bonds were redeemed with proceeds from the issuance of $55.6 million in Series A fixed rate healthcare revenue bonds and $4 million in series B adjustable rate healthcare revenue bonds. The financing was also used in part for modifications to the community, including the construction of 15 two-bedroom cottages, as well as to cover interest, debt service and other costs of the bond issuance.

While Glenmoor maintained occupancy at a level of around 90% from June 2005 until 2010, occupancy dropped that year to 88% as a result of more move-outs than move-ins, according to the Chapter 11 filing.

This triggered significant entrance fee refund obligations that have grown to a current unpaid amount of $7,787,000, with unpaid refunds dating back to January 2011.

Under Florida state law, any refund due to a resident who terminates a Type A contract—a traditional amortizing entrance fee contract—is to be paid within 120 days of notice of termination.

As of May 31, 2013, Life Care owed 29 residents or their estates a total of $7,787,000 in refund obligations.

Life Care also cites it was negatively impacted by rising healthcare costs and a disproportionate share of its residents utilizing long-stay healthcare services.

Following the recession, Glenmoor saw prospective residents delaying move-ins, which as a result increased the refunds owed by the community.

Under Florida state law, CCRCs are required to obtain a certificate of authority, which was ultimately revoked from Life Care in August.

Florida’s Office of Insurance Regulation (OIR) found Glenmoor deficient in its refund obligations as early as August 2012. Glenmoor’s corrective action plan, submitted in April of this year, was rejected for failing to provide a complete resolution to the CCRC’s refund queue.

The amended plan—which would restructure the Series 2006 bonds and provide a two-year forbearance from debt service on those bonds, along with two refund repayment options—was also rejected.

Glenmoor had sought to give residents (or their estates) who were due a refund a choice between an immediate 50% cash payment that would fully satisfy the refund claim, or deferred payments of 100% of the amount owed over a 12-year period.

On July 1, 2013, the OIR notified Glenmoor of the rejection of the amended and revised plan, stating that it will initiate receivership action to resolve the company’s refund obligations.

The total refund obligations coming due in the next 10-12 years are approximately $47,000,000, according to the filing.

Life Care anticipates several emergency relief filing motions in the first week of its Chapter 11 case, including authority to utilize cash collateral and a motion for an order to authorize continued use of its cash management system and maintenance of escrow accounts.

Written by Jason Oliva


Companies:

Category: CCRCs, Senior Housing

Comments (0)

Trackback URL | Comments RSS Feed

There are no comments yet. Why not be the first to speak your mind.

Comments are closed.