June 25, 2021 – Buckingham Senior Living Community, Inc. ("The Buckinghman" or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 21-32155 (Judge Isgur). The Debtor, a 495-unit, Houston-based continuing care retirement community ("CCRC"), is represented by Demetra Liggins of Thompson & Knight LLP. Further board-authorized engagements include (i) Riley Investment Services as financial advisors and (ii) Stretto as claims agent.
The Debtor's petition notes between 1,000 and 5,000 creditors; estimated assets between $100.0mn and $500.0mn (Debtor notes May 2021 book value of $202.8mn with $182.8mn of that comprised of property, plant, and equipment); and estimated liabilities between $100.0mn and $500.0mn (See further on breakdown of an estimated $345.1mn of liabilities below). Documents filed with the Court list the Debtor's top 30 unsecured creditors as residents with claims in respect of their deposits ranging from $458k to $1.08mn.
Goals of the Chapter 11 Filings
The Debtor commenced this Case to consummate a debt restructuring of the Debtor’s long-term obligations while also providing for continued and uninterrupted care of the Residents. As detailed below, in order to address its financial condition, the Debtor engaged in extensive, arm’s length negotiations with the Bond Trustee and the holders of at least sixty-nine percent (69%) of outstanding aggregate principal amount of all Secured Bonds issued (the “Consenting Holders”) with a goal of achieving a consensual restructuring, centered on a refinancing of the Secured Bonds (the “Bond Refinancing”).
The Disclosure Statement provides: "Under the Plan, the Debtor will implement the Restructuring Transaction, which provides, among other things, for the Debtor to restructure its debt obligations and continue to operate as it did prior to the bankruptcy Case, with the additional oversight and recommendations of Solutions Advisors Group (‘Solutions Advisors’), a nationally-recognized senior living consultant. In addition, the Debtor will receive new funding of $28.5 million represented by the Series 2021A Bonds to improve The Buckingham Facility, address immediate deferred capital needs and to provide additional working capital to allow The Buckingham to operate in the ordinary course. The proposed Plan achieves a value-maximizing debt restructuring that comprehensively addresses the Debtor’s debt obligations. As a broad overview, the Plan provides for a global compromise and settlement of all Claims, Causes of Action, and controversies.
As discussed below, Current Resident Claims are Unimpaired under the Plan, and are therefore conclusively deemed to accept the Plan, and are not entitled to vote on the Plan. Residents holding Charter Refund Obligation Claims will be paid in full on the Effective Date as set forth on Sche dule D to the Restructuring Term Sheet. Former Residents holding Pre-Petition Refund Queue Claims shall be paid in full at the times and in the amounts set forth in the Plan. The Debtor believes that the Plan provides the means for maximizing recovery for those Holders of Claims entitled to receive a distribution under the Plan. Perhaps most importantly, the Plan provides for the continued, uninterrupted care of the Residents throughout the bankruptcy process and beyond, and certainty regarding the Debtors’ future operations for all of the Debtor’s stakeholders including, the Debtor’s Residents, employees, and vendors."
On the Plan's key feature, a bond exchange, the restructuring term sheet (attached to the Plan at Schedule 1) provides: "This Restructuring Term Sheet (this Term Sheet'), dated as of June 25, 2021 (the 'Execution Date'), sets forth certain of the principal terms and conditions of a financial restructuring (the 'Restructuring Transaction') of the outstanding indebtedness of Buckingham Senior Living Community, Inc. 'Buckingham') including, without limitation, (i) Tarrant County Cultural Education Facilities Finance Corporation Retirement Facility Revenue Bonds (Buckingham Senior Living Community, Inc. Project), Series 2007 (the 'Series 2007 Bonds') issued pursuant to that certain Indenture of Trust dated as of July 1, 2007 (the '2007 Original Indenture'), between Tarrant County Cultural Education Facilities Finance Corporation (the 'Issuer') and UMB Bank, N.A., as successor trustee (the 'Trustee'), (ii) Tarrant County Cultural Education Facilities Finance Corporation Retirement Facility Revenue Bonds (Buckingham Senior Living Community, Inc. Project), Series 2014 (the 'Series 2014 Bonds') issued pursuant to the 2007 Indenture, as supplemented by Supplement No. 1 to the Indenture of Trust, dated as of July 1, 2007 (the 2007 Original Indenture, as supplemented, the '2007 Indenture') and (iii) Tarrant County Cultural Education Facilities Finance Corporation Retirement Facility Revenue Bonds (Buckingham Senior Living Community, Inc. Project), Series 2015A Fixed Rate, Series 2015B-1 Tax Exempt Mandatory Paydown Securities (TEMP- 80) and Series 2015B-2 Tax Exempt Mandatory Paydown Securities (TEMP- 50) (the 'Series 2015 Bonds' and together with the Series 2007 Bonds and Series 2014 Bonds, the 'Existing Bonds') pursuant to that certain Indenture of Trust dated as of August 1, 2005 (the '2015 Indenture' and together with the 2007 Indenture, the 'Bond Indentures') between the Issuer and the Trustee. The Restructuring Transaction contemplates, among other things, the issuance of new Series 2021A Bonds and an exchange (the 'Proposed Exchange') of the outstanding Existing Bonds in the aggregate principal amount of approximately $140,340,000 for new Series 2021B Bonds (as such terms are hereinafter defined). This Term Sheet contemplates the consummation of the Restructuring Transaction through a Plan of Reorganization (the 'Plan') in a Chapter 11 proceeding of the Buckingham (the 'Anticipated Bankruptcy Proceeding') pending before a court of a competent jurisdiction (the 'Bankruptcy Court') as more fully described below. This Term Sheet and the undertakings contemplated herein are subject in all respects to the negotiation, execution and delivery of mutually acceptable definitive documentation between Buckingham, the Issuer, the Bond Trustee, the Master Trustee (as defined below) and the members of an informal steering committee comprised of bondholders currently holding 69% of the outstanding aggregate principal amount of Bonds (the 'Steering Committee') and the solicitation process referenced herein."
The following is summary of classes, claims, voting rights and expected recoveries (defined terms are as in the Plan and/or Disclosure Statement, see also the Liquidation Analysis below):
- Class 1 (“Priority Non-Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Secured Bond Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“Miscellaneous Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 4 (“Charter Refund Obligation Claims”) is impaired and entitled to vote on the Plan. All Residence Agreements of Holders of Class 4 Claims, to the extent such Residence Agreements remain executory, shall be rejected. Each Holder of an Allowed Charter Refund Obligation Claim in Class 4 shall receive from the Reorganized Debtor on or as soon as reasonably practicable after the Effective Date, a cash payment equal to the full amount outstanding to such holder as set forth on Schedule D of the Restructuring Term Sheet [at Schedule 1 of the Plan]. Cash payments of Allowed Charter Refund Obligation Claims shall be paid from the proceeds of the Series 2021A Bonds in accordance with the Restructuring Term Sheet.
- Class 5 (“Pre-Petition Refund Queue Claims”) is impaired and entitled to vote on the Plan. All Residence Agreements of Holders of Class 5 Claims, to the extent such Residence Agreements remain executory, shall be rejected as of the Effective Date. Each Holder of an Allowed Pre-Petition Refund Queue Claim in Class 5 shall receive from the Reorganized Debtor, pro rata cash payments made semi-annually to the extent that on such semi-annual dates the Reorganized Debtor has Operating Cash in excess of 150 Days Cash on Hand until such time as the Allowed Pre-Petition Refund Queue Claims are paid in the full.
- Class 6 (“Current Resident Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 7 (“Trade Claims”) is impaired and entitled to vote on the Plan.
- Class 8 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan.
Events Leading to the Chapter 11 Filing
The Disclosure Statement provides the following detail as to the events leading to the Buckingham's Chapter 11 filing, with the Debtor's detailing the multiple existential threats posed by Hurricane Harvey, the "outsized impact on the senior living industry" of COVID-19 and some structural defects at their property: “Certain events outside of The Buckingham’s control have prevented The Buckingham from achieving the projected occupancy and revenues anticipated at the time The Buckingham undertook the Expansion Tower project. In the midst of the construction of the Expansion Tower, which was expected to greatly increase revenues at the Facility, Hurricane Harvey hit Houston, severely impacting the Debtor’s ability to build and implement this new addition. Additionally, with so many homes damaged in the Houston area, prospective residents of the Expansion Tower were unable to sell their homes once the Expansion Tower units became available for occupancy and thus delayed their move to the Facility. As a result, the Expansion Tower units were slower to fill, resulting in decreased anticipated revenues to cover the additional operating expenses of the Expansion Tower as well as debt service on the additional debt incurred to fund the Expansion Tower.
While the Debtor and the Bond Trustee were able to negotiate a Forbearance Agreement to ameliorate Hurricane Harvey’s impact on the Debtor’s ability to operate, just as new Life Care Residents were occupying more Expansion Tower units, COVID-19 spread throughout the United States, having an outsized impact on the senior living industry, and deterring potential residents from entering the Facility.
Additionally, in mid-2015, The Buckingham discovered that there were structural defects in the original building that needed to be corrected. The Buckingham only discovered these defects after the period to file a claim against the original general contractor had expired, and thus The Buckingham was required to incur further expense to repair its facilities.
Economic and natural phenomena outside of the Debtor’s control has limited The Buckingham’s ability to pay the obligations under its pre-petition capital structure. The Buckingham has also become the target of litigation as described in more detail below.”
As of the Petition date, on a book value basis, The Buckingham had approximately $345.1mn of liabilities, which consists of approximately:
- $0.9mn in accounts payable;
- $1.0mn in accrued costs;
- $2.7mn in PPP loan obligations (anticipated to be forgiven);
- $1.5mn in triggered 180-Day Entrance Fee refund obligations;
- $32.0mn in Entrance Fee refund obligations due upon receipt by The Buckingham of sufficient new Entrance Fees to fund such refund obligations;
- $130.4mn in contingent Entrance Fee refund liabilities; and
- $160.4mn (plus accrued interest and OID) of long-term municipal bond obligations; and
- $16.2mn in other accrued liabilities.
The Debtor has arranged commitments for up to $3.4mn (interim) of debtor-in-possession financing to be provided by bond Trustee UMB Bank, N.A. with the pre-petition Bond Trustee agreed to the priming of its Pre-Petition Liens on the Pre-Petition Collateral in exchange for certain adequate protection assurances.
The Disclosure Statement attached the following:
- Exhibit A: Debtor’s Chapter 11 Plan
- Exhibit B: Feasibility Projections
- Exhibit C: Liquidation Analysis
- Exhibit D: Proposed Disclosure Statement Order
The restructuring term sheet is attached at Schedule 1 of the Plan.
The Buckingham is a non-member nonprofit corporation with a self-perpetuating board of directors and has no equity security holders.
About the Debtors
According to the Debtors: “The Buckingham, a Texas nonprofit corporation, owns and operates a 495-unit continuing care retirement community ('CCRC') comprised of 465,000 square feet of developed property on approximately 23 acres of land which opened in 2005. As of June 1, 2021, the Debtor employe d 370 employees (the 'Employees'). The Buckingham offers seniors a full continuum of care in one centralized campus-style setting throughout the aging process."
Liquidation Analysis (see Exhibit C of Disclosure Stateent for notes)
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