An upscale continuing care retirement community (CCRC) in Ohio with an approximately 53% occupancy rate has filed for Chapter 11 bankruptcy protection, court documents show.
South Franklin Circle is a not-for-profit community that opened in 2009 and has struggled to achieve high occupancy due to the economic downturn. The CCRC currently has about $110.2 million of debt with aims to restructure to about $66.8 million of debt, a reduction of about 40%.
The 293-unit CCRC has 199 independent living units that were 53% occupied as of the petition date, and 40 assisted living units, 21 of which were occupied.
The collapse of the housing market, the plunge in the stock market, and the subsequent economic downturn and slow recovery created a “perfect storm” that hit the CCRC model “especially hard”—with new start-ups being very vulnerable, the community said in its disclosure statement, dated Oct. 19, 2012 and filed six days later.
“During the past several years, many CCRCs, including South Franklin Circle, have faced various obstacles in building and/or maintaining occupancy levels,” said the statement. “Such obstacles include struggling national and regional economies, a weakened credit environment, limited access to capital and declining real estate values. Prospective residents have had difficulty selling their homes and have lost significant amounts of their retirement funds in the financial markets, making it more difficult for many to move into or remain in senior housing facilities like South Franklin Circle.”
Ohio nonprofit corporation Judson and its affiliates have been operating the community, which posted a $6.9 million revenue for the year ended Dec. 31, 2011. Through Aug. 31, 2012, the community brought in revenues of $5.7 million.
In the filing, South Franklin Circle listed assets of $167.2 million and liabilities of $166.3 million. As of the disclosure statement, the community had outstanding debt of approximately $110.2 million in Series 2007A and Series 2007B bonds along with accrued unpaid prepetition interest of about $401,652.
The proposed new debt structure under the Chapter 11 bankruptcy filing would be:
- $31 million in New Series A bonds (to be issued by Geauga County, Ohio, maturing Dec. 31, 2047)
- $10 million New Series B Bonds (same issuer, maturing Dec. 31, 2022)
- $8 million in New “Bank B” Notes (maturing Dec. 31, 2022)
- $17.75 million New “Bank C” Notes (subordinated; maturing Dec. 31, 2047)
- $550,000 New Hamlin Exit Facility loan (if required)
This amounts to about $66.8 million of debt.
Under the restructuring plan, contracts for current residents of the CCRC will be assumed and all of their terms honored, says the disclosure statement. Additionally, other general unsecured claims would not be affected by the plan and are anticipated to be paid in full. Only claims held by lenders under the company’s prepetition secured credit documents are impaired by the restructuring, South Franklin Circle notes. KeyBank National Association, Sovereign Bank, PNC Bank, The Huntington National Bank, and JPMorgan Chase Bank, N.C. are listed as the community’s prepetition secured lenders.
The filing lists several strategies that may help enhance the CCRC’s financial performance, including analyzing and potentially adjusting entrance fee pricing to better meet market demands; marketing the community’s wellness programs and an on-campus restaurant to the public to increase exposure for the community; and contracting with a nationally-recognized marketing firm to maximize marketing and sales strategies in this difficult economy.
The CCRC plans to continue operating its business through the process.
Written by Alyssa Gerace