Buckingham Senior Living Community, Inc. – Houston-Based Retirement Community Emerges from Bankruptcy as of November 30th with $28.5mn of New Bond Financing, $40.9mn in Former Resident Refunds to be Repaid “Over a Period of Time”

December 3, 2021 – The (now former) Debtor notified the Court that its First Amended Chapter 11 Plan of Reorganization had become effective as of November 30, 2021 [Docket No. 521, which attaches the "Amended Pre‐Effective Date Refund Queue" now totalling $40.9mn]. The Court had previously confirmed the Debtor’s Plan on November 9, 2021 [Docket No. 493].

On 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). At filing, the Debtor, a 495-unit, Houston-based continuing care retirement community (“CCRC”), noted 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). In a subsequently filed Schedule A/B, the lead Debtor noted $193.2mn of assets and $197.07mn of liabilities [Docket No. 93].

The Debtor was represented by (i) Thompson & Knight LLP as bankruptcy counsel, (ii) Riley Investment Services as financial advisors and (iii) Stretto as claims agent.

Deadlines for filing administrative claims and professional fee claims have been set for December 30, 2021 and January 31, 2022, respectively.

Plan Overview

The Debtor's memorandum of law in support of Plan confirmation [Docket No. 485] notes, “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. The Debtor has engaged in extensive discussions with its key constituents regarding financing and restructuring options to formulate a chapter 11 plan to preserve and maximize the value of its assets and business and to protect the interests of the Residents. As a result of these efforts, the Debtor’s Plan enjoys the support of the Consenting Holders and the Creditor’s Committee. Further, each Impaired Voting Class voted to accept the Plan.

Among other things, the Plan provides for new financing in the principal amount of $28.5 million and payment of all Resident refund obligations in full, as well as continued, uninterrupted care of the Residents throughout the bankruptcy process and thereafter. The Plan could improve the Debtor’s liquidity and working capital by as much as $5 million to $7 million and provides for an initial distribution (and subsequent distributions) on account of Former Residents’ Allowed Refund Claims.”

The Disclosure Statement [Docket No. ] 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, 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, provide an initial distribution to the holders of the Pre-Effective Date Refund Queue 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 except as specifically provided for herein. 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. Former Residents holding Pre-Effective Date Refund Queue Claims shall retain the ability be paid in full at the times and in the amounts set forth in the Plan. Trade Claims (which are claims held by trade vendors who provide goods and services necessary to the ongoing operations of the Debtor) will be paid in full on or promptly after the Effective Date. 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 Debtor’s future operations for all of the Debtor’s stakeholders including, the Debtor’s Residents, employees, and vendors.

The Disclosure Statement continues: “The Debtor estimates its current total liabilities as of July 31, 2021 are approximately $345.51 million, including approximately: (a) $160.48 million (including accrued interest) of longterm municipal bond obligations; (b) $163.63 million in possible Resident Entrance Fee liabilities (approximately $38.1 million of which are Pre-Effective Date Refund Queue Claims); (c) $1.3 million in accrued costs and accounts payable; (d) $690,071 of payroll related liabilities; (e) approximately $16.72 million of other accrued liabilities (inclusive of FSO accounting accrual) and (f) $2.69 million paycheck protection program (‘PPP’) loan (which is anticipated to be forgiven). The Plan reduces the total debt on the Buckingham’s books by, among other things, making the following significant financial adjustments: (a) eliminating approximately $20.14 million of the Secured Bond Claims (plus interest that accrues after July 2021 as well as the DIP financing obligations), resulting in total secured bond debt at exit from this bankruptcy Case of approximately $168.84 million (inclusive of the new $28.5 million Series 2021A Bonds investment); and (b) projected payment in full of the greater than $38 million [this up to $40.9mn as of the Plan's effectiveness date] in refunds owed to Former Residents over a period of time.

A brief summary of the proposed restructured Secured Bond Claims under the Plan is as follows (the Restructuring Term Sheet attached as Exhibit A to the Plan provides more details):

1. Tax-exempt Series 2021A-1 Bonds and Taxable Series 2021A-2 Bonds in the aggregate of $28,500,000 at a 7.5% interest rate and maturing in 2037; the Series 2021A Bonds will be secured by a first priority lien on substantially all of the Reorganized Debtor’s Assets.
2. Exchange of $160.48 million (plus interest that accrues after July 2021 and the DIP financing obligations) in Secured Bond obligations for Tax-exempt Series 2021B Bonds of $140.34 million accruing interest (but not payable) at the minimum long-term applicable federal rate in effect on the Effective Date until the earlier of (a) 5 years from the Effective Date and (b) the PreEffective Date Refund Queue Claims being paid in full (the ‘Trigger Date’); beginning on the Trigger Date, the accreted principal amount will pay current interest at 5.0% until the Par Call Date (as defined below) and 5.625% thereafter and will mature in 2061; the Series 2021B Bonds will be secured by a lien on all substantially all Assets of the Reorganized Debtor, but will be subordinate, as to lien and payment, to the Series 2021A Bonds; and
3. Cancellation and discharge of approximately $20.14 million of the Secured Bonds obligations (plus interest that accrues after July 2021 and the DIP financing obligations).”

The Series 2021A Bonds total $28.5 million and will be paid based upon a defined payment schedule, including interest only payments for the first four (4) years from the Effective Date. The amortization schedule for the Series 2021A Bonds is as set forth on Schedule A to the Restructuring Term Sheet. The Series 2021A Bonds will be subject to mandatory redemption from Excess Cash after the Pre-Petition Effective Date Refund Queue Claims are paid in full.

The Series 2021B Bonds total $140.34 million and will be paid based upon a defined payment schedule pursuant to the Distribution Waterfall set forth in the Restructuring Term Sheet.

Starting with the Trigger Date, the accreted principal amount will pay current interest at 5.0% until year ten (10) and 5.625% thereafter. The Series 2021B Bonds will be interest only until year 17 and shall amortize from years 17 to 40. The amortization schedule for the Series 2021B Bonds is as set forth on Schedule B to the Restructuring Term Sheet. The Series 2021B Bonds will be subject to mandatory redemption from Excess Cash after the Series 2021A Bonds are paid in full.
The Liquidating Trust Contribution Amount and the Contributed Causes of Action will be transferred to a Litigation Trust for the benefit of Holders of Allowed Class 4 Pre-Effective Date Refund Queue Claims and Allowed Class 7 General Unsecured Claims (collectively, the “Litigation Trust Beneficiaries”). The Litigation Trust Beneficiaries will receive a Pro Rata distribution from any Litigation Trust Distributable Cash.

In addition to receiving Pro Rata distributions from Litigation Trust Distributable Cash, Holders of Allowed Class 4 Pre-Effective Date Refund Queue Claims shall receive (a) a Pro Rata share of the Initial Queue Payment; and (b) after the Effective Date, so long as the Operating Cash exceeds 135 Days Cash on Hand (as defined in the Restructuring Term Sheet), 100% of the Reorganized Debtor’s Excess Cash (as defined in the Restructuring Term Sheet) until their Allowed Pre-Effective Date Refund Queue Claims are paid in full, which is anticipated by the Debtor to be five (5) years from the Effective Date.

Trade Creditors will be paid in full, in Cash, on or as soon as reasonably practicable after the latest to occur of (a) the Effective Date; and (b) the date on which such Trade Creditor’s Trade Claim becomes an Allowed Claim."

The following is a 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 impaired and entitled to vote on the Plan. The Secured Bond Claim is an Allowed Secured Claim in the aggregate principal amount of $140,340,000 plus the costs and expenses of the Trustee and its professionals. Any such costs and expenses outstanding shall be paid from the funds held by the Trustee under the Bond Indentures and/or from the proceeds of the Series 2021A Bonds on the Effective Date.
  Treatment: Each Holder of Secured Bond Claims shall exchange the then outstanding Secured Bonds for a pro rata share of the Series 2021B Bonds issued in the aggregate original principal amount of $140,340,000 as set out more fully in the 2021 Bond Documents.
• Class 3 (“Miscellaneous Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 4 (“Pre-Effective Date Refund Queue 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 as of the Effective Date. Each Holder of an Allowed Pre-Effective Date Refund Queue Claim in Class 4 shall receive, in full and complete settlement, satisfaction, release and discharge of and in exchange for such Claim, (a) its Pro Rata share of the Initial Queue Payment; (b) its Pro Rata share of the Litigation Trust Distributable Cash as soon as practicable as determined by the Litigation Trustee; and (c) 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 135 Days Cash on Hand until such time as the Allowed Pre-Effective Date Refund Queue Claims are paid in the full.
• Class 5 (“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.  Each Holder of an Allowed Trade Claim shall receive payment in full, in Cash, of such Allowed Class 6 Claim without interest. Cash payments of Allowed Claims in Class 6 shall be paid from the Debtor’s Available Cash, or if the Debtor’s Available Cash is insufficient to pay all Allowed Claims in Class 6, any shortfall shall be paid from the proceeds of the Series 2021A Bonds.   
• Class 8 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. Class 7 consists of all Allowed General Unsecured Claims, including,
  without limitation, (a) the Secured Bonds Deficiency Claim; and (b) any claim of a Resident (under such Resident’s Residence Agreement or otherwise), except for a Refund Claim. Each Holder of an Allowed General Unsecured Claim shall receive its Pro Rata share of Litigation Trust Distributable Cash as soon as reasonably practicable as determined by the Litigation Trustee; provided, however, that the Holders of Secured Bond Claims will receive no distribution on account of their Secured Bonds Deficiency Claim but shall have the right to vote such claims in Class 7.

Key Definitions

• “Initial Queue Payment” means a distribution to the Holders of Allowed Pre-Effective Date Refund Queue Claims, which shall be made on the Effective Date in the amount equal to the unpaid amount of Charter Refund Obligations that are triggered and due and payable prior to the Effective Date and which amount shall not exceed $2.366 million.
• “Litigation Trust Assets” means Contributed Causes of Action Proceeds plus any Liquidating Trust Contribution Amount remaining after satisfaction of the reasonable fees and expenses of the Litigation Trust, the Litigation Trustee, and any Litigation Trustee Professionals.
• “Litigation Trust Contribution Amount” means $50,000 to be funded from the Debtor’s Available Cash in accordance with the Restructuring Term Sheet.
• “Litigation Trust Distributable Cash” means all Litigation Trust Assets reduced to Cash.

Voting Results

On November 5, 2021, the Debtor's claims agent notified the Court of the Plan voting results [Docket No. 484] which were as follows:

• Class 2 (“Secured Bond Claims”): 94 claim holders, representing $125,855,000.00 (or 99.12%) in amount and 93.07% in number, accepted the Plan. 7 claim holders, representing $1,115,000.00 (or 6.93%) in amount and 0.88% in number, rejected the Plan.
• Class 4 (“Pre-Effective Date Refund Queue Claims”): 51 claim holders, representing $21,616,577.00 (or 72.51%) in amount and 71.83% in number, accepted the Plan. 20 claim holders, representing $8,195,263.11 (or 27.49%) in amount and 28.17% in number, rejected the Plan.
• Class 6 (“Trade Claims”): 14 claim holders, representing $103,347.11 in amount and 100% in number, accepted the Plan.
• Class 7 (“General Unsecured Claims”): 97 claim holders, representing $18,075,034.87 (or 99.12%) in amount and 93.27% in number, accepted the Plan. 7 claim holders, representing $160,012.11 (or 0.88%) in amount and 6.73% in number, rejected the Plan.

Events Leading to the Chapter 11 Filing 

The Amended 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: “The Debtor believes that certain events, which are described below and 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 Buckingham’s Expansion Tower—which was expected to greatly increase revenues at the Facility—Hurricane Harvey hit Houston in August of 2017, which the Debtor believes severely impacting its ability to build and implement this new addition. Additionally, the Debtor believes 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 of Hurricane Harvey, completion of the Expansion Tower was delayed by a total of six months and delays and added expenses resulted in a shortfall of $3,400,000 for construction completion. Despite these delays, in November 2017, The Buckingham was able to open 99 of its new Expansion Tower independent living units for occupancy and by March 31, 2018, had 61 units occupied. By April 2018, occupancy at the Expansion Tower stagnated at around 65% and occupancy at the Classic continued to soften and had declined to 85.5% as of April 10, 2018. On approximately April 30, 2018, cash on hand had dropped from $15.1 million or 199 Days Cash on Hand at December 31, 2017, to $10.9 million or 103 Days Cash on Hand. The Buckingham’s failure to reach projected occupancy levels created a covenant default under its Bond Indenture.

In May 2018, SQLC announced that they were exploring a potential affiliation with Life Space Communities. By August 2018, occupancy in The Buckingham’s “Classic” building had declined from 190 units to 168, a decline of 22 units and the Expansion Tower occupancy had increased by only seven units to 68.

Given the pending defaults and the construction shortfalls for the Expansion Tower, on November 16, 2018, The Buckingham and UMB Bank, N.A., as Trustee under the Master Bond Indenture, entered into a Forbearance Agreement. In addition, Seniority would no longer be managing The Buckingham and the Debtor entered into a new Operations & Marketing Management Services Agreement with Greystone under which Greystone was to once again manage day‐to‐day operations and marketing for The Buckingham. As compensation, Greystone was to receive a monthly management fee equal to 5.75% of the gross revenues of The Buckingham and a monthly administrative fee equal to 3.5% of the monthly management fee. On December 10, 2018, Jamie Kneen, employed by Greystone, started as the new Executive Director of the Buckingham.

On May 10, 2019, Lifespace and SQLC executed an affiliation agreement which required that The Buckingham be disaffiliated from SQLC before Lifespace would close the transaction of its purchase of certain SQLC communities. Upon closing, Lifespace became the surviving parent entity and the sole ultimate owner and operator of certain former SQLC communities.

In March 2019, the SQLC-controlled board of The Buckingham resigned. On June 5, 2019, The Buckingham disaffiliated from SQLC and the entities executed mutual releases and The Buckingham became a stand‐alone entity with an independent self-perpetuating board. Two days later, on June 7, 2019, a new long term forbearance agreement was executed which provided for among other things, funding for the completion of the Expansion Project, funding for certain remediation needs of the Classic Building and ordinary capital expenditures. The new board, also the current existing board, faced the significant challenges of addressing the problems of the Expansion Tower and related expansion and increasing occupancy.

In January 2020, the construction of the Expansion Tower was completed, including all related improvements. However, just as The Buckingham completed construction, on March 13, 2020, an emergency was declared concerning COVID‐19. As a result of state and national measures to curb the spread of COVID-19, restrictions were placed on visitation at senior living facilities and generally affected the desire of individuals to move into congregate settings. By November 2020, only 127 of the 205 Classic units were occupied and 30 of the 100 Expansion Tower units remained unsold.

The Debtor believes that the above-described economic and natural phenomena outside of the Debtor’s control have 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.”

DIP Financing

On August 24, 2021, the Court hearing the Buckingham Senior Living Community cases issued a final order authorizing the Debtors to (i) access the $1.9mn balance of what was in total $3.4mn of debtor-in-possession (“DIP”) financing and (ii) continue using cash collateral [Docket No. 238]. On June 29, 2021, the Court authorized the Debtors to access a first $1.5mn tranche of the DIP financing, provided by UMB Bank, N.A. (“UMB Bank”) on an interim basis [Docket No. 50].

Prepetition Indebtedness 

As of July 31, 2021, on a book value basis, The Buckingham had approximately $345.511mn of liabilities, which consist of approximately:

• $1.30mn in accounts payable and accrued operating expenses;
• $690k in accrued payroll related costs;
• $2.69mn in PPP loan obligations (anticipated to be forgiven);
• $125.54mn of current resident refund obligations;
• $38.09mn of former resident refund obligations;
• $160.48mn long-term municipal bond obligations (including accrued interest); and
• $16.72mn in Other Accrued and FSO Liabilities

Key Documents

The Amended Disclosure Statement attached the following [Docket No. 309]:

• Exhibit A: Debtor’s Chapter 11 Plan 
• Exhibit B: Feasibility Projections
• Exhibit C: Liquidation Analysis
• Exhibit D: Proposed Disclosure Statement Order
• Exhibit E: Exhibit E: 2021 Bond Documents (to be filed)
• Exhibit F: Creditors’ Committee Letter in Support of Plan

The Debtors filed Plan Supplements at Docket Nos. 459 and 471, which attached the following documents:

• Exhibit A: Litigation Trust Agreement [Docket No. 471]
• Exhibit B: Amended Schedule D to the Restructuring Term Sheet [Docket No. 471]
• Exhibit C: 2021 Bond Documents (Exhibit E to Disclosure Statement) [Docket No. 471]
• Exhibit D: Identity of Litigation Trustee [Docket No. 471]
• Exhibit E: Proposed Board of Directors of the Reorganized Debtor [Docket No. 471]
• Exhibit F: Amended Bylaws of the Reorganized Debtor [Docket No. 471]

NB: The restructuring term sheet is attached at Exhibit A of the Amended Plan.

Significant Shareholders

The Buckingham is a non-member nonprofit corporation with a self-perpetuating board of directors and has no equity security holders.

Liquidation Analysis (see Exhibit C of Amended Disclosure Statement for notes)

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 employed 370 employees (the ‘Employees’). The Buckingham offers seniors a full continuum of care in one centralized campus-style setting throughout the aging process.”

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The post Buckingham Senior Living Community, Inc. – Houston-Based Retirement Community Emerges from Bankruptcy as of November 30th with $28.5mn of New Bond Financing, $40.9mn in Former Resident Refunds to be Repaid “Over a Period of Time” appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.