Bondholders Lose $23 Million in Restructuring of Bankrupt CCRC

Bondholders for Clare Oaks, a continuing care retirement community in Bartlett, Ill., will lose about $23 million as a result of a new bond issue, unanimously approved by the Illinois Finance Authority, to restructure the bankrupt community’s debt.

The IFA voted 11-0 to approve a $90 million bond issuance to restructure the debt obligations of Clare Oaks by reducing its annual debt service to a “level that can be sustained by present and anticipated future operations,” according to a memorandum to the IFA Board of Directors filed on Dec. 20, 2012. 

The CCRC is sponsored by the Sisters of St. Joseph of the Third Order of St. Francis and is located on ground belonging to the not-for-profit organization under a ground-lease.


In 2006, the IFA issued $112,725,000 of revenue bonds to fund part of the costs of the community’s development. However, like many other CCRCs during this timeframe, Clare Oaks was adversely affected by the downturn in the economy and “challenging market conditions. Upon its 2007 opening, the CCRC experienced difficulty in generating income and achieving a stabilized occupancy as many seniors were unable to sell their homes to afford the requisite entrance fee.

This resulted in lower-than-expected revenue, causing the Sisters of St. Joseph of the Third Order of St. Francis corporation to default on its obligations relating to the Series 2006 Bonds, according to the IFA memorandum, which led to a voluntary filing for Chapter 11 bankruptcy protection and reorganization in December 2011. 

During the Chapter 11 case, the corporation looked to sell its assets and hired B.C. Ziegler and Company to conduct a sale process satisfying certain sale milestones under its debtor-in-possession (DIP) loan. 


Several months later, the corporation announced it had negotiated a stalking horse asset purchase agreement with a for-profit buyer for a purchase price of about $16 million. The proposed sale, following the payment of the DIP loan and transaction costs, would have yielded only about a $10 million return to the community’s creditors. 

Because of the anticipated low recovery to creditors under the proposed sale of assets, the Master Trustee and Sovereign Bank, N.A. objected to the sale, says the IFA memorandum.

However, the $90 million bond exchange to replace the $112.7 million in bonds issued in 2006 has been approved by a U.S. Bankruptcy Court judge and the Illinois Finance Authority, who will issue the new bonds on behalf of the CCRC despite the $23 million loss it represents to investors. 

Once Clare Oaks emerges from bankruptcy, it will no longer be sponsored by the Sisters of St. Joseph of the Third Order of St. Francis, although certain members of the Order will continue to serve on the community’s board. 

Despite initially struggling to lease-up, the 164-unit independent living section of Clare Oaks had attained about a 79% occupancy rate as of Nov. 30, 2012, while its 120 skilled nursing beds were about 81% occupied and its 32 assisted living and specialty care units were almost completely full. 

Life Care Services, LLC manages the CCRC.

View the IFA Memorandum

Written by Alyssa Gerace