The Amsterdam at Harborside, a continuing care retirement community (CCRC) in Port Washington, N.Y., has filed a pre-negotiated chapter 11 bankruptcy petition to restructure an estimated $220 million in debt.
Like many CCRCs that opened during the height of the recent recession, the community experienced significant financial stress upon opening due to the impact of the economic downturn on the housing market.
The Long Island CCRC, which opened in August 2010 and is 85% sold and occupied, has 229 independent living units, 26 enriched housing units, 18 memory support units and 56 skilled nursing beds.
It has reached a consensual agreement with 75% of its bondholders for the restructuring terms, but because unanimous bondholder consent was required under the terms of the original bond offering, a chapter 11 filing was necessary, the organization says.
“It’s important to understand there’s one reason and one reason only we’re filing, and that’s because it’s impossible to get the unanimous consent of 1,000 [bondholders],” The Amsterdam President and CEO Jim Davis tells SHN.
The community raised about $296 million in original financing, but had paid down about $75 million prior to the chapter 11 filing on July 22, leaving roughly $220 million in outstanding debt.
Economic pressures and the housing market, in particular, put significant pressure on the community, eventually leading to the restructuring. Entrance fees for the community ranged from $500,000 to $1.6 million, and averaged $800,000, comparable to the average cost of a home in the CCRC’s market, about 30 miles east of the heart of Manhattan.
The Amsterdam opened “right in the middle of a terrible housing market,” Davis says.
“We really opened up in the middle of that crisis and the fill-up was much slower than originally anticipated,” he says. “That’s what got us to fall behind.”
These pressures drove the community to start discussions with bondholders about restructuring its debt more than a year ago, Davis says.
“The moment we began to identify here that we had an issue, we proactively began to look at this restructuring,” he said. “I think part of our success here is identifying the problem early and beginning the process of restructuring early on.”
To restructure the debt, the outstanding bonds from the community’s financing in 2007 will be exchanged for new 2014 bonds through a plan of reorganization in the pre-negotiated bankruptcy filing. Under the plan, the payment terms of the existing 2007 debt will be modified.
“The bondholders have extended the term of the loan to make sure that we have adequate liquidity to provide the highest level of services going forward,” Davis says.
At 85% occupancy, the facility was experiencing a surge in sales and new resident move-ins. For those residents who moved in after June 1, 2014, individual escrow accounts have been established as a way to reassure residents that their deposits would remain separate from the bankruptcy proceedings.
The Amsterdam is expected to move through the restructuring process in a short time span, emerging as early as this fall, the organization says.
Written by Emily Study
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