CASE RESULTS DEPEND UPON A VARIETY OF FACTORS UNIQUE TO EACH CASE AND DO NOT GUARANTEE OR PREDICT A SIMILAR RESULT IN ANY FUTURE CASE
Continuing care retirement communities (CCRCs) that face financial difficulties and operate on the "entrance fee model" may find themselves facing a lose-lose situation. Up-front entrance fees paid by new residents are vital to the CCRC's ability to fund operations and repay secured debt. The ability to accept these entrance fees is typically regulated. When a CCRC has entered a zone of "financial instability" it may be restricted from accepting entrance fees.
A prominent CCRC located in the mid-Atlantic faced this very problem when it fell behind on its bond payments, which resulted in an agreement between the CCRC and state regulators requiring the CCRC to stop collecting entrance fees from new residents. That order left the community in a desperate situation. Without entrance fees, the CCRC was unable to pay its bond debt, but failing to pay its bond debt in a timely manner prohibited it from collecting entrance fees. As a solution, the CCRC initiated a Chapter 11 reorganization case, which allowed it to restructure its long-term debt obligations while continuing to provide its residents with high quality services. Further, upon proof of the restructuring, state regulators determined the CCRC to be "financially stable" and rescinded the restriction on accepting entrance fees.
Complicating its restructuring efforts was the fact that the CCRC's long-term debt was created through the issuance of municipal bonds, the holders of which were largely unknown to the CCRC. Sold on the public market, the bonds were held by a variety of investors, including institutional and "mom and pop" bondholders. The bondholders were represented by a trustee through a series of indenture and trust agreements. In order to formulate a successful reorganization plan, the CCRC was required to engage in negotiations with the indenture trustee but ultimately needed to secure the votes of the bondholders to have its plan of reorganization confirmed.
In addition, the CCRC had to contend with two other constituents: the official committee of unsecured creditors and an unofficial committee of residents. Both groups sought to protect the residents' rights under their lifecare contracts.
LeClairRyan attorneys helped the CCRC navigate these hurdles by: (1) securing debtor-in-possession financing to allow the retirement community to continue operations while the bankruptcy case was pending; (2) securing exit financing to fund the emergence from bankruptcy; and (3) winning confirmation of its third amended plan of reorganization.
Today, the CCRC is attracting new residents while meeting its debt obligations in a timely manner.