American Eagle Delaware Holding Company LLC – With Sale of Vista Lake Facility Finally Completed, Operator of Senior Living Facilities Emerges from Bankruptcy as of September 8th

September 8, 2022 – The Debtors notified the Court that their Third Amended Plan of Reorganization had become effective as of September 8, 2022 [Docket No. 551]. The Court had previously confirmed the Debtors’ Plan on April 27, 2022 [Docket No. 328]. As discussed below, the gap between confirmation and effectiveness was caused by a messy sale process in respect of the single assisted facility that the Debtors had decided to sell as part of the bankruptcy; with Plan effectiveness predicated on closing of that relatively small sale.

On January 14, 2022, American Eagle Delaware Holding Company LLC and 16 affiliated Debtors (“American Eagle Delaware” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 22-10028. At filing, the Debtors, the not-for-profit parent holding company for Eagle Senior Living, which offers independent living, assisted living and memory care, noted estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $10.0mn and $50.0mn. In a subsequently filed Schedule A/B, the lead Debtor noted $16.9mn of assets and $266.3mn of liabilities [Docket No. 160].

At filing on January 14th, the Debtors, who operated 15 residential senior care facilities, flagged their intent to “transition certain of their underperforming Facilities to new operators, which efforts may include a sale pursuant to Bankruptcy Code section 363(f).”

In a press release announcing the emergence, the (former) Debtors stated that, “[t]hey have successfully completed a comprehensive financial reorganization to achieve a more balanced and sustainable capital structure. Eagle Senior Living has significantly reduced its debt service and enhanced its liquidity position, creating a stronger financial foundation.

As part of the Chapter 11 process, Eagle Senior Living executed a transaction whereby the Company’s Vista Lake community was acquired by Atlantis Senior Living LLC. The sale of Vista Lake has closed, and the Vista Lake community is no longer an Eagle Senior Living community. All other Eagle Senior Living communities continue to operate uninterrupted, providing high-quality care and amenities to all residents.”

The Debtors were represented by: (i) Polsinelli PC as general bankruptcy counsel, (ii) FTI Consulting, Inc. as financial advisor, (iii) Blueprint Healthcare Real Estate Advisors, LLC as advisor and broker and (iv) Epiq Corporate Restructuring, LLC as claims agent.

The deadlines for filing administrative claims and professional fee claims has been set for October 10, 2022 and October 24, 2022, respectively.

Delay to Plan Effectiveness

On August 12th, the Court hearing the American Eagle Delaware Holding Company cases issued an order approving a settlement between the Debtors and 11722 N 17th LLC (“Atlantis,” an affiliate of Brooklyn-based Atlantic Senior Living) further to which Atlantis, named the back-up bidder in respect of the Debtors’ Leesburg and Florida Senior Care Facilities and Memory Care Facilities (a/k/a “The Vista Lake Assets”) at an April 8th sale hearing, would purchase the Vista Lake Assets for $4.0mn…a reduction from the $7.0mn Atlantis had bid at the Debtors' March 31st auction. 

For the Debtors, who otherwise had their Plan confirmed on April 27, 2022, this was a considerable setback given that their Plan required a completed sale of The Vista Lake Assets in order to proceed from confirmation through to effectiveness. 

On July 21, 2022, the Debtors notified the Court that the presumptive successful bidder at auction, Evanston, Ill-based Illuminate HC, LLC (“Illuminate”) had failed to consummate the approved sale…and probably never had the financing to do so. Atlantis argued that Illuminate's bid had pushed up its own and that it should not therefore be held to the inflated result. Given that Atlantis effectively had a blocking position on what was a $200.0mn restructuring for the Debtors (The Vista Lake Assets, the only facility operated by the Debtors being sold and a relatively small piece of the restructuring puzzle), the Debtors ultimately abandoned their efforts to hold Atlantis to their $7.0mn bid.

In a declaration in support of the settlement [Docket No. 504], Todd Topliff, Debtors' CEO provides: "The Debtors cannot consummate the transactions set forth in the Plan and declare the Effective Date of the Plan until Vista Lake has been sold. 

As such, the Effective Date under the Plan cannot occur and the Debtors cannot emerge from bankruptcy until the sale of Vista Lake has closed and the Debtors have received sale proceeds therefrom and applied them in accordance with the Code. Stated otherwise, the Debtors’ inability to sell this one underperforming asset would prevent the Debtors from being able to consummate the restructuring of over $200 million in secured indebtedness."

Plan Overview

According to the Topliff Declaration, the Debtors’ prearranged Chapter 11 Plan “provides for a reduction in the Debtors’ prepetition outstanding secured indebtedness by approximately $40 million, to be accomplished pursuant to a mandatory exchange of the Series 2018 Bonds for certain new Series 2022 Bonds.

Also, certain of the Controlling Holders have agreed to purchase new Series 2022A Bonds, the proceeds of which will be loaned to the Debtors and used to fund working capital (approximately $6.44 million) and capital expenditures (approximately $15.23 million) over the four years following the Debtors’ emergence from bankruptcy.”

The amended Disclosure Statement [Docket No. 207] states, “The Debtors believe that the Plan, which is the result of extensive, arm’s-length negotiations among (i) the Debtors, (ii) UMB Bank, N.A., as the Trustee for the Series 2018 Bonds and (iii) holders of a majority in principal amount of the Series 2018A Bond Claims (the ‘Consenting Holders’), provides the Debtors with a long-term resolution of their financial issues. In particular, the Debtors, the Trustee, and the Consenting Holders, as applicable, have agreed to the terms of a Restructuring Support Agreement (the ‘Restructuring Support Agreement’) a copy of which is attached hereto as Exhibit B [Docket No. 207] together with a restructuring of the Debtors’ bond obligations (each defined and described below) that collectively provide for the Restructuring Transaction. In general, the Restructuring Transaction provides for: 

• The funding of an additional $28,125,000.00 in new money bond financing comprised of $10,905,000.00 of principal amount of new taxable Series 2022A-1 Bonds and $17,220,000.00 of principal amount of new tax-exempt Series 2022A-2 Bonds to fund a Capital Expenditure Fund (approximately up to $15,230,000, which shall sit within the Project Account of the Project Fund), an Operating Fund (up to approximately $6,436,000) to meet the Working Capital Requirement, Debt Service Reserve Funds for the Series 2022A Bonds and Series 2022B Bonds and certain capitalized interest and closing costs; and
• An exchange of the outstanding Series 2018 Bonds for a pro rata share of the Series 2022 Bonds.”

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

• Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 3 (“Series 2018A-1 Bond Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $140,760,000. Each Holder will be deemed to have exchanged its Series 2018A-1 Bonds for a new series of tax-exempt 2022B-1 Bonds in an initial principal amount equal to the principal amount of Series 2018A-1 Bonds held by such holder plus accrued and unpaid interest thereon to the Petition Date, minus the Vista Lake Redemption Amount. In addition, not later than the Effective Date, any accrued and unpaid fees and expenses of the 2018 Trustee will be paid in Cash or from Trustee-Held Funds.
• Class 4 (“Series 2018A-2 Bond Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $19,160,000. Each Holder will be deemed to have exchanged its Series 2018A-2 Bonds for a new series of taxable 2022B-2 Bonds in an initial principal amount equal to the outstanding principal amount of Series 2018A-2 Bonds held by such holder plus accrued and unpaid interest thereon to the Petition Date. In addition, not later than the Effective Date, any accrued and unpaid fees and expenses of the 2018 Trustee will be paid in Cash or from Trustee-Held Funds.
• Class 5 (“Series 2018B Bond Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $33,815,000. Each Holder will be deemed to have exchanged its Series 2018B Bonds for (a) a new series of tax-exempt 2022C Bonds in an initial principal amount equal to fifty percent (50%) of the sum of (i) the outstanding principal amount of Series 2018B Bonds held by such holder plus (ii) unpaid accrued interest thereon to the Petition Date, and (b) its Pro Rata share of the GUC Fund on account of the 2018B Deficiency Claim. In addition, not later than the Effective Date, any accrued and unpaid fees and expenses of the 2018 Trustee will be paid in Cash or from Trustee-Held Funds.
• Class 6 (“Series 2018C Bond Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $21,790,000. Each Holder will be deemed to have exchanged its Series 2018C Bonds for (a) a new series of tax-exempt 2022D Bonds in an initial principal amount equal to ten percent (10%) of the sum of (i) the outstanding principal amount of Series 2018C Bonds held by such holder plus (ii) unpaid accrued interest thereon to the Petition Date, and (b) its Pro Rata share of the GUC Fund on account of the 2018C Deficiency Claim. In addition, not later than the Effective Date, any accrued and unpaid fees and expenses of the 2018 Trustee will be paid in Cash or from Trustee-Held Funds.
• Class 7 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $54,202,781 and expected recovery is 0.5%. Only to the extent that any such General Unsecured Claim has not been paid by any applicable Debtors prior to the Effective Date, on the Effective Date, or as soon as reasonably practicable thereafter, each Holder will receive such Holder’s Pro Rata share of the GUC Fund as full and complete satisfaction of each Holder’s Claim.
• Class 8 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 9 (“Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan.

Voting Results

On April 22, 2022, the Debtors’ claims agent notified the Court of the voting result [Docket No. 314], which were as follows:

• Class 3 (Series 2018A-1 Bond Claims): 168 claim holders, representing $127,611,500.08 (100%) in amount and 100% in number voted in favour of the Plan.
• Class 4 (Series 2018A-2 Bond Claims): 2 claim holders, representing $20,638,737.12 (100%) in amount and 100% in number voted in favour of the Plan.
• Class 5 (Series 2018B Bond Claims): 77 claim holders, representing $7,227,690.13 (or 97.51%) in amount and 90.59% in number, accepted the Plan. 8 claim holders, representing $184,878.71 (or 2496%) in amount and 9.41% in number, rejected the Plan.
• Class 6 (Series 2018C Bond Claims):  2 claim holders, representing $22,594.63 (or 40%) in amount and 40% in number, accepted the Plan. 3 claim holders, representing $33,891.94 (or 60%) in amount and 60% in number, rejected the Plan. 
• Class 7 (General Unsecured Claims): 89 claim holders, representing $8,284,270.40 (or 94.41%) in amount and 88.12% in number, accepted the Plan. 12 claim holders, representing $490,313.36 (or 5.59%) in amount and 11.88% in number, rejected the Plan.

Key Documents

The Disclosure Statement [Docket No. 207] attaches the following exhibits:

• Exhibit A: Plan of Reorganization
• Exhibit B: Restructuring Support Agreement, dated January 14, 2022
• Exhibit C: 2022 Bond Documents
• Exhibit D: Financial Projections

On March 30, 2022, the Debtors filed a Plan Supplement to their Third Amended Plan of Reorganization [Docket No. 277], which attaches the following documents:

• Exhibit A: The Liquidation Analysis
• Exhibit B: The Assumption Schedule
• Exhibit C: The Rejection Schedule

Goals of the Chapter 11 Filing

From the Topliff Declaration, "The Debtors seek chapter 11 relief to accomplish several goals: (a) to ensure that the residents in the Facilities continue to experience and receive high-quality care while the Debtors implement their restructuring strategy; (b) to right-size their balance sheets by reducing the Debtors’ prepetition secured debt by approximately $40 million; (c) to provide for approximately $28 million in new capital to be used for working capital and much needed capital expenditures; (d) to maximize the value of the Debtors’ assets related to profitable Facilities; and (e) to enable the Debtors to transition certain of their underperforming Facilities to new operators, which efforts may include a sale pursuant to Bankruptcy Code section 363(f)."

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the "Topliff Declaration”), Todd Topliff, the Debtors’ president, detailed the events leading to American Eagle Delaware’s Chapter 11 filing. The Topliff Declaration provides: “The Debtors’ financial distress is due to several factors, including COVID-19 stress on the senior living community and liquidity constraints.

As set forth in more detail above, the Debtors financed the acquisition of the Facilities primarily through the issuance of the Series 2018 Bonds in the original principal amount of $219,415,000. Moreover, the healthcare industry as a whole, and retirement communities in particular, have faced financial difficulties during recent years. The dramatic changes in the healthcare market over the last decade have impacted the Debtors’ operations.

Prior to the onset of the COVID-19 pandemic, the Debtors had been experiencing financial difficulties that necessitated engaging a financial consultant. The Debtors engaged Vinca Group L.L.C. ('Vinca Group') to conduct a review of the Facilities’ operations, forecast cash flow available for debt service through 2021, and make recommendations to assist the Debtors in restoring compliance with the days cash on hand requirement under the Bond Financing Documents. The Vinca Group issued its report on February 14, 2020. The Debtors operated with regard to the Vinca Group’s report and followed its recommendation as was feasible.

The COVID-19 pandemic in the first quarter of 2020 severely disrupted most industries in our nation, and the senior living industry has been hit especially hard. The residents that the Debtors care for are the population at the greatest risk of this virus, and the Debtors are committed to the health and safety of all of their residents and staff. The Debtors incurred significant costs as a direct result of the COVID-19 protocols and procedures implemented….

In addition to increased expenses, substantial occupancy declines throughout 2020 caused reductions in revenue. These occupancy declines were largely due to natural attrition, but as residents moved out, the Facilities struggled to replace them with new residents because of a material reduction in marketing leads and facility tours provided to prospective residents relative to pre-pandemic levels. Occupancy at the Facilities had been increasing since the Debtors acquired the Facilities, but the onset of the pandemic led to a substantial decline… Further, the rise of the variants of COVID-19 halted recovery of the Facilities’ occupancy rates demonstrated in the first half of 2021.

Further impacting revenue, the Debtors have had to deal with multiple complexities and challenges created by the pandemic including but not limited to:

• medical professionals discouraging residents and families from moving to senior living facilities;
• hospitals and nursing homes not allowing in-person assessments due to essential visitor restrictions;
• risks with admitting residents coming from hospitals, nursing homes or rehab centers that have cases of COVID-19;
• shelter in place orders;
• state and local regulations deterring any current move-ins;
• tours being limited to 'virtual' and not in person; and
• an overall desire for residents to stay at home and a general public aversion to senior living facilities during the COVID-19 crisis."

The Topliff Declaration further explains, "In light of the significant cost increases and other challenges associated with the pandemic, in March 2020, the Debtors determined that they could not make timely debt service payments on the Bonds while also protecting the health and safety of their residents and staff. The Debtors proactively reached out to the Bond Trustee in March 2020 to apprise of the situation and the Debtors’ determination that they could not make payments on the Series 2018 Bonds while ensuring the health and safety of their residents and staff due to the financial strain of the COVID19 pandemic. The Debtors held calls with investors on March 16, 2020, April 13, 2020, August 25, 2020, and November 13, 2020 to discuss these issues as well as the Debtors’ efforts during the pandemic.

Restructuring Efforts

On July 30, 2020, the Debtors and the Trustee entered into that certain Forbearance Agreement (as subsequently amended or modified, the 'Forbearance Agreement'), pursuant to which the Trustee, at the direction of holders of a majority of the aggregate outstanding principal amount of the Series 2018A Bonds, agreed to forbear exercising its rights under the Bond Documents with respect to the Specified Defaults (as defined in the Forbearance Agreement)….

Pursuant to the terms of the Forbearance Agreement, the Debtors were required to, among other things: (i) pay to the Bond Trustee $2,895,760 on account of amounts owing on the Bonds on the date of the Forbearance Agreement; (ii) pay to the Bond Trustee $432,772.97 that was in the Insurance and Tax Escrow Fund (as defined in the Bond Indenture) established under the Bond Indenture on the date of the Forbearance Agreement; (iii) recommence depositing all Project Revenues into the Revenue Fund (each as defined in the Bond Indenture) as required by the Bond Indenture; (iv) adhere to an agreed-upon budget with certain permitted variances; (v) update the budget each month to add an additional four weeks such that the budget will always be a rolling 13-week budget, and (vi) under certain circumstances, pay to the Bond Trustee excess cash flows.

Prior to the Petition Date, the Debtors marketed and sold the facility known as 'Ventura Hills' located in San Antonio, Texas (the 'Ventura Hills Facility'). The Ventura Hills Facility was owned by American Eagle Castle Hills LLC ('Castle Hills'). The purchase price for the Ventura Hills Facility was $2,750,000.00, subject to prorations and adjustments as provided in the Asset Purchase and Sale Agreement. The sale of the Ventura Hills Facility closed on or about January 1, 2021… On February 24, 2021, the Bond Trustee used net proceeds of the sale and additional funds of Holdings to redeem $2,365,000 in principal amount of the Series 2018A-1 Bonds, and $350,000 in principal amount of Series 2018A-2 Bonds.

Also prior to the Petition Date, the Debtors retained a broker with significant experience in the marketing and sale of senior living facilities, Blueprint Healthcare Real Estate Advisors ('Blueprint') to conduct a broad marketing process for potential regional and national operators for the Debtors’ Facility known as Vista Lake in Florida. As a result of a robust prepetition marketing process, the Debtors have identified a number of potential purchasers for Vista Lake. To maximize the value of Vista Lake, the Debtors propose to continue the sales process post-petition as they continue to negotiate with potential purchasers and develop strategies.

Despite instituting many cost saving recommendations from the Debtors’ advisors throughout 2020 and 2021, the Debtors have continued to face financial pressure. As a result, the Debtors recognized the need to seek relief by filing petitions for relief under Chapter 11 of the Bankruptcy Code. In order to maximize the value of the Debtors’ assets, restructure the Debtors’ prepetition capital structure, ensure sufficient liquidity to support the Debtors’ ongoing business operations and continue to provide quality care to the residents of the Facilities, the Debtors have negotiated with the Trustee and the holders of a majority in aggregate principal amount of outstanding Series 2018A Bonds (the 'Controlling Holders') a consensual Chapter 11 Plan of Reorganization (the 'Plan')."

Prepetition Indebtedness

As of the Petition Date, the Debtors owe creditors a total of approximately $252,942,285 consisting of secured bond obligations and unsecured obligations, including accrued interest as of the Petition Date (collectively, the “Debt Obligations”).

As of the Petition Date, the amounts due and owing by the Debtors with respect to the Series 2018 Bonds are as follows:

1. unpaid principal on the Series 2018A-1 Bonds in the amount of $140,760,000 and accrued but unpaid interest on the Series 2018A-1 Bonds in the amount of $12,543,701.90;
2. unpaid principal on the Series 2018A-2 Bonds in the amount of $19,160,000 and accrued but unpaid interest on the Series 2018A-2 Bonds in the amount of $1,478,737,12;
3. unpaid principal on the Series 2018B Bonds in the amount of $33,815,000 and accrued but unpaid interest on the Series 2018B Bonds in the amount of $2,304,198.06;
4. unpaid principal on the Series 2018C Bonds in the amount of $21,790,000 and accrued but unpaid interest on the Series 2018C Bonds in the amount of $2,826,844.77; and
5. accrued and unpaid fees and expenses of the Trustee and its professionals incurred through the Petition Date (such amounts, when liquidated, shall be added to the aggregate amount of the Bond Claims).

Additionally, a portion of the costs of the 2018 acquisition of the Facilities were financed through a $10,000,000 Deferred Purchase Price Promissory Note dated December 20, 2018 (the “Seller Note”), made by each property owner Debtor in favor of Brookdale Senior Living Communities, Inc. (“Brookdale”). As of the Petition Date, $10,000,000 in principal amount and $1,688,021.90 in accrued interest is due and owing by the property owner Debtors on the Seller Note.

Significant Shareholders

The Debtors have no outstanding “equity securities” as defined in section 101(6) of title 11 of the United States Code, 11 U.S.C. §§ 101-1532 (the “Bankruptcy Code”), no “equity security holders” as defined in section 101(17) of the Bankruptcy Code, and no equity interests for purposes of the Federal Rules of Bankruptcy Procedure 1007 and 7007.1; however, American Eagle Lifecare Corporation is the sole member of the lead Debtor under Delaware Limited Liability Company Act.

Liquidation Analysis

About the Debtors

According to the Debtors: “The Debtors were formed in 2018 when American Eagle Delaware Holdings Company LLC and its subsidiaries purchased 16 senior living communities and related assets from Brookdale Senior Living Inc. in a move to expand their network of senior care facilities across the United States. The Debtors were organized and thereafter operated exclusively for public charitable uses and purposes within the meaning of Section 501(c) (3) of the Internal Revenue Code. Specifically, the Debtors’ charitable purposes include acquiring, owning, maintaining and operating senior living facilities and providing healthcare and residential care to the elderly and infirm. The Facilities offer their residents a continuum of care in a community setting, providing living accommodations and related healthcare and support services to seniors. The Facilities are located across seven states and are comprised of 362 independent living apartments, 641 assisted living units and 192 memory care units. Depending on location, the Facilities also contain dining rooms and lounges, libraries, beauty parlors and other common spaces.”

Corporate Structure Chart

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