Moody’s: Bond Defaults Loom As Covid-19 Hits Senior Housing Hard

No other U.S. public finance sector has been hurt more by the Covid-19 pandemic than senior housing and care, according to Moody’s Investor Service.

“While many hospitals, entities with bonds secured by taxes frozen during the economic shutdown, and other types of enterprises are seeing some pinch, no other sector has seen the singular confluence of both revenue and expenditure difficulties as the elder housing sector,” Moody’s Vice President Dan Seymour wrote in a commentary released Friday.

Since March, at least nine borrowers in the senior housing and care sector have drawn from debt service reserve funds, violated bond covenants, or requested a discussion with bondholders to renegotiate terms, Moody’s found. The firm analyzed filings with the Municipal Securities Rulemaking Board.

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There are thousands of disclosures across many sectors, but senior housing has disclosed the most severe events, Seymour told Senior Housing News via email.

Some of these issuers were already having these issues prior to Covid-19, but the pandemic has further eroded their financial position. 

In one example, Eagle Senior Living failed to make a monthly payment on Series 2018 bonds, according to a May 11 filing cited by Moody’s. The obligated group for the bonds consists of 17 facilities across eight states, offering independent living, assisted living and memory care. Eagle is requesting a forbearance agreement for a period of six months while a bond restructuring is discussed. The provider did not respond to requests for additional comment from Senior Housing News.

Eagle is not alone in facing financial dilemmas.

“The Eagle Senior Living disclosure echoes the descriptions provided by a number of elder housing borrowers in reporting debt service reserve fund draws and warning of pending defaults,” the Moody’s analysts wrote. Skilled nursing facilities and continuing care retirement communities are among the types of organizations that are failing to make payments or are in violation of covenants. 

Such situations have been predicted since the Covid-19 crisis began unfolding.

With costs surging and revenue pinched, senior living providers have sought a variety of solutions depending on their capital structures, including deferring their rent with real estate investment trusts (REITs) and tapping government support through the Paycheck Protection Program (PPP). 

Continuing care retirement communities (CCRCs) with investment-grade credit ratings generally have the ability to weather a crisis like Covid-19, but lower-rated CCRCs are on more tenuous ground, Fitch Ratings said in a recent note and webinar.

Financial distress related to Covid-19 likely will result in industry consolidation, several industry professionals have predicted, and opportunistic investment funds are already being raised with this in mind.

Meanwhile, some operators say they have the means to absorb higher expenses but also warn that the current situation is not tenable in the long term.

Industry groups such as Argentum, the American Seniors Housing Association (ASHA) and LeadingAge have been pushing federal lawmakers to provide targeted financial support to the industry. With Congress considering a $3.3 trillion round of stimulus, ASHA and Argentum are advocating for $20 billion to be allocated specifically to senior living. All told, they warn, Covid-19 could cost the industry $57 billion.

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