A Virginia continuing care retirement community announced Tuesday it will file for Chapter 11 bankruptcy protection in order to restructure its debt, resulting in millions of dollars of losses to lenders and investors.
The WindsorMeade of Williamsburg, sponsored by Virginia United Methodist Homes, is the latest in a number of CCRCs that launched during the housing crisis and are now experiencing financial distress. It will file for Chapter 11 reorganization to implement a consensual restructuring plan that is amenable to the community’s debt holders.
The debt reorganization stands to represent the latest in a trend of like properties with similar problems, says George Mesires of Ungaretti and Harris LLP.
“CCRCs such as this one that opened near the height of the recession have been particularly hard hit because of the unexpected impact the recession would have on the facility’s planned fill-up,” Mesires says. “A pre-arranged or pre-packaged bankruptcy case, which will likely involve some exchange of bonds by the current holders for new bonds, is in-line with a growing trend of senior housing restructurings.”
The WindsorMeade, which opened for business in June 2008, has since struggled to reach projected occupancy, with 143 out of more than 200 units being occupied today.
Rather than declare bankruptcy and auction off the property as has been the case in some high-profile deals, the restructuring route may serve beneficial for the bondholders, Mesires says.
“Recently, bond restructurings have resulted in higher returns for the investors, the bondholders, versus sales of assets out of bankruptcy. Moreover, restructurings generally maintain the seamless operation of the facilities for the benefit of their most important constituents, the residents.”
Originally structured using $43.2 million in Series A bonds, $5 million in Series B bonds and $65.9 million in Series C bonds, the restructuring will reduce current total outstanding debt from $61.7 million to $38.5 million.
Long-term bondholders will essentially get a $9.4 million “haircut” in complete debt forgiveness and another $9.9 million in deeply subordinated debt that will only be repaid if or when the community reaches a certain financial position, according to company executives.
The non-profit property has reached agreements with its banks as well as the necessary two-thirds of its bondholders and expects to emerge from Chapter 11 no later than May 31.
“We’ve never had a financial problem—we have a financing problem,” WindsorMeade President Christopher Henderson told SHN. “It boiled down to a debt capacity challenge. We’ve done long-term modeling to get us to a debt model of $38.5 million of debt that we believe will be successful.”
The CCRC will continue to operate during the restructuring process with an initial goal of driving occupancy to a break-even point of 80%.
“WindsorMeade will continue to operate uninterrupted during this process, and will continue to provide quality services and care to its residents,” the company stated. “Among other things, the restructuring plan is intended to facilitate financing for the future expansion of WindsorMeade’s health care facility, with construction expected to begin in 2014.”
Residents’ entrance fees will not be impacted, nor will other communities under the same ownership, Henderson said.
Written by Elizabeth Ecker