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March 22, 2023 – Amsterdam House Continuing Care Retirement Community, Inc. (d/b/a as “The Amsterdam at Harborside,” “AHCCRC” or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Eastern District of New York, lead case No. 23-70989 (Judge Alan S. Trust). The Debtor, "a best-in-class senior living community which is situated on approximately 8.9 acres in Port Washington, New York and is dedicated to giving its residents an enriching lifestyle," is represented by Gregory M. Juell of DLA Piper LLP. Further Board authorized appointments include: (i) Ankura Consulting Group LLC as financial advisors (and supplying a CRO), (ii) Grandbridge Real Estate Capital LLC as real estate broker and (iii) Epic Corporate Restructuring as claims agent.
The Debtor's petition notes between 1,000 and 5,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. Each of the Debtor's 30 largest unsecured creditors are residents with claims relating to their entrance fee deposits ranging from $835k to $1.16mn.
This is the Debtor's 3rd trip through the bankruptcy turnstiles since 2014, with the Debtor most recently emerging from bankruptcy (same court, same judge, case number 21-71095) in September 2021. Now, as then, the Debtor’s sole corporate member is Amsterdam Continuing Care Health System, Inc. ("ACCHS" or the "Member," dba as Amsterdam Nursing Home), which is also a New York not-for-profit corporation. This time around, the Debtor will pursue an asset sale, with New England Life Plan Communities Corp. (a not-for-profit corporation organized and existing under the laws of Massachusetts or "NELP'') to serve as stalking horse*. ACCHS, which has long-served as the Debtor's source of emergency funding, has agreed to prove $9.0mn of debtor-in-possession ("DIP") financing to see the Debtor through the sale process.
* In December of 2021 New England Life Plan Communities, financed by Hamlin Capital Management, became the new owner of "The Commons," a CCRC located in Lincoln, Mass. NELP appears to have been formed for purposes of acquiring "The Commons" CCRC, with its President Larry Bradshaw resigning as President and CEO of National Lutheran Communities & Services in May of 2021 before assuming the post of President and CEO at NELP.
The 2021 Bankruptcy (please see also our separate coverage and Plan Summary)
The key features of the 2021 bankruptcy were (i) a debt-for-debt exchange with outstanding principal under new bonds reflecting a $12.6mn reduction in debt, (ii) the extinguishment of a $59.5mn series of bonds and (iii) an injection of $58.7mn of new money via bond sales and a capital injection from ACCHS.
The reduction of "bond obligations by nearly $80,000,000 plus accrued interest [and] additional bond purchase by the Consenting Holders and contributions by the Member…collectively bring[ing in] $58,710,000 of new money…" clearly not enough.
Th Debtors provided as to their 2021 Plan: "The Revised First Amended Plan is the product of extensive good faith, arm’s length negotiations between the Debtor and its primary stakeholders, including the trustee for the Debtor’s outstanding 2014 Bonds (including any successors, the '2014 Bond Trustee'), the holders of approximately 75% in principal amount of the Debtor’s 2014 Bonds (the 'Consenting Holders').
The Debtor worked cooperatively with its primary regulators, with its Residents and with the families of former residents who had significant claims for entrance fee refunds. The Revised First Amended Plan preserves the Debtor’s business, puts it on sound financial footing for the future and allows the Debtor to meet its obligations to past, present and future Residents. The Plan also puts the Debtor in compliance with applicable New York State regulations. The Revised First Amended Plan also facilitates the consummation of a debt-for-debt exchange supported by the vast majority of holders of 2014 Bonds and the issuance of new bond debt to fund plan obligations.
Under the Revised First Amended Plan, the Series 2014A Bonds and Series 2014B Bonds will be exchanged for Series 2021B Bonds in a face amount equal to 91% of their principal amount outstanding, a debt principal reduction of approximately $12,589,930. The existing Series 2014C Bonds, with an outstanding principal amount of $59,537,660, will be extinguished without any payment or consideration. Further, pursuant to the Revised First Amended Plan, not only will the Debtor reduce its bond obligations by nearly $80,000,000 plus accrued interest, but an additional bond purchase by the Consenting Holders and contributions by the Member will collectively bring $58,710,000 of new money into the Debtor to meet its debt service obligations, fund compliance with regulatory requirements (including minimum liquidity reserve requirements), fund the payment of entrance fee refunds to former residents [although without interest on their deposits] and fund operational expenses, dramatically improving liquidity.”
Goals of the Chapter 11 Filings
According to the Morton Declaration (defined below), "… the Debtor commenced this Chapter 11 Case to pursue a secondary marketing process and overbid process to find potentially higher and better offers for the sale of its business under section 363 of the Bankruptcy Code, thus maximizing the return to creditors and other parties in interest.”
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Morton Declaration”), Michael Morton, the Debtor's chief restructuring officer, detailed the events leading to AHCCRC’s Chapter 11 filing. The Morton Declaration provides: “The Debtor relies on revenue generated by existing and new Residents to, among other things, maintain its day-to-day operations, service its debt obligations and honor Entrance Fee Refunds. However, the Debtor has struggled to attract new Residents at the projected pace due in part to the lingering impact of COVID-19 and the prior restructurings.
Specifically, as a result of the 2021 Chapter 11 Case, the Debtor restructured its bond debt through new money bond financing and the exchange of its existing bonds for the Series 2021B Bonds. The Debtor also obtained a $18 million contribution from its Member, consisting of the Initial Member Contribution and the LSA. The hope after the 2021 restructuring was that the capital investment from the Debtor’s key stakeholders would reassure prospective Residents that the Debtor’s operations were stable and boost occupancy levels. Unfortunately, the Debtor’s 2021 restructuring efforts did not achieve the intended goal.
As discussed above, commencing in May 2022, representatives of the Debtor informed the Bondholder Group of the Debtor’s marketing, regulatory and financial challenges. To address those challenges, the Debtor retained a consultant to develop and implement a marketing strategy to attract new residents to The Harborside. After its marketing efforts failed to result in a meaningful improvement in its occupancy levels, the Debtor solicited feedback from the Bondholder Group regarding the retention of an advisor to assist in the evaluation of its strategic alternatives and ultimately selected Grandbridge, one of the Bondholder Group’s approved advisors.
Debtor’s Prepetition Marketing Process
In October 2022, Grandbridge commenced the Marketing Process. As previously discussed, Grandbridge circulated a marketing teaser to over 4,400 parties, including for-profit and non-profit operators in New York and around the country. Those interested parties who signed non-disclosure agreement were provided a detailed offering memorandum that provided extensive information about The Harborside. All interested parties were given an opportunity to submit nonbinding indications of interest ('IOIs'), and the Debtor received IOIs from eight interested parties. Seven of those parties then toured the Debtor’s community and met with the Debtor’s management team and six of those parties submitted second round letters of intent ('LOIs'). All of the parties that submitted LOIs expressed an intent to continue operating The Harborside as a CCRC and assume Residency Agreements….
Unfortunately, the Bondholder Group was unwilling to engage in discussions with the Debtor regarding the LOIs, despite knowing that the Top Bidders either (i) expressly required the support of the Bondholder Group or (ii) contemplated obtaining significant financing in the bond market, including potentially from members of the Bondholder Group. Given its deteriorating financial condition, the Debtor urged the Bondholder Group to reconsider its position so that the Debtor could maximize value for its stakeholders, including the Bondholder Group. In fact, the Debtor advised the Bondholder Group that its refusal to engage with Top Bidders would likely result in the Top Bidders either withdrawing or modifying their LOIs to the detriment of the Debtor’s stakeholders.
Despite such repeated efforts, the Bondholder Group refused to engage with the Top Bidders and the Debtor was left with no choice but to proceed with its Marketing Process without the Bondholder Group’s support. In the interest of maximizing value for all of its constituents, the Debtor contacted the Top Bidders and requested that they submit bids that did not require support from the Bondholder Group. Following extensive and arm’s-length negotiations, the Debtor and the Plan Sponsor agreed upon the terms of the Stalking Horse Term Sheet, pursuant to which the Plan Sponsor is prepared to act as the sponsor for the Proposed Plan. Shortly after the Petition Date, the Debtor intends to commence a postpetition marketing and overbid process to find potentially higher and better offers under section 363 of the Bankruptcy Code, thus maximizing the return to creditors and other parties in interest."
Plan Sponsor Stalking Horse Agreement
In respect of the Plan Sponsor Stalking Horse Agreement, the Morton Declaration explains, "Following extensive and arm’s-length negotiations, the Debtor and New England Life Plan Communities Corp. (together with its designee, if any, the 'Plan Sponsor') agreed upon a non-binding term sheet (the 'Stalking Horse Term Sheet'), pursuant to which the Plan Sponsor is prepared (subject to a diligence period, definitive documentation, and Court approval) to act as the sponsor for a plan of reorganization (the 'Proposed Plan') to be filed by the Debtor in this Chapter 11 Case.
The Proposed Plan will provide for either (i) the Plan Sponsor to acquire the sole corporate membership interest in the reorganized Debtor or, alternatively, substantially all of the Debtor’s assets pursuant to a sale under the Proposed Plan and/or sections 363 and 365 of the Bankruptcy Code, subject to an auction process and bidding procedures or (ii) the Plan Sponsor to acquire the sole corporate membership interest in the Debtor and all of the Series 2021 Bonds. These alternatives, which will be subject to additional marketing and an overbid process, are intended to provide for the greatest flexibility and value for the Debtor’s constituents while providing the Debtor with an exit strategy for this Chapter 11 Case.
The Plan Sponsor is a not-for-profit entity that intends to work with OnePoint Partners, Senior Care Development, Fundamental Advisors, and Benchmark Senior Living to provide The Harborside with critical operational, financial and turnaround support needed to become a successful CCRC. The Plan Sponsor intends to, among other things, continue operating The Harborside as a best-in-class CCRC, assume all Residency Agreements and fund staterequired, operating, debt service and capital expenditure reserves."
Debtor’s Default Under the 2021 Bond Documents
The Morton Declaration further states, "Given its liquidity position, around the time it commenced its Marketing Process, the Debtor began deferring its monthly installment payments due under the Installment Sale Agreement. In connection with such deferrals, the Debtor engaged in discussions with the Bondholder Group regarding a forbearance agreement and bridge funding. To support such requests, the Debtor provided the Bondholder Group with detailed financial projections which demonstrated the Debtor’s need for additional funding in March 2023.
In the interest of further preserving liquidity, the Debtor deferred its January 1, 2023 interest payment due under the Installment Sale Agreement. On January 4, 2023, the Bond Trustee drew the full amount from the Operating Reserve Fund totaling $1,563,024.23 and $923,571.06 from the Debt Service Reserve Fund in order to pay the full amount of interest due on the Series 2021 Bonds on January 1, 2023, while declaring the principal of the Series 2021 Bonds immediately due and payable. Then, on January 27, 2023, the Bond Trustee sent a notice of acceleration and declared immediately due and payable the payments due under the Installment Sale Agreement and Series 2021 Bonds. Additionally, the Bond Trustee withdrew over $13.5 million from the various reserve accounts established under the 2021 Bond Indenture.
Despite the Debtor’s best efforts to work consensually with the Bondholder Group to find the best path forward for the Debtor and its stakeholders, the Bondholder Group was unwilling to engage with the Debtor for reasons outside of the Debtor’s control and took steps to exercise its remedies, exacerbating the Debtor’s financial condition and threatening its ability for provide for the Residents."
Bond Debt. In connection with the 2021 Plan, the Nassau County Industrial Development Agency (in such capacity, the “2021 Issuer”) issued the Series 2021A Bonds and Series 2021B Bonds (collectively, the “Series 2021 Bonds”). Specifically, certain holders of Series 2014 Bonds purchased $40,710,000 in Series 2021A Bonds. Additionally, in connection with the 2021 Plan, the Series 2014 Bonds were exchanged for Series 2021B Bonds in the aggregate principal amount of $127,327,200. As of the Petition Date, approximately $40,710,000 of the Series 2021A Bonds and $127,327,200 of the Series 2021B Bonds remains outstanding.
Unsecured Debt. In addition to the 2021 Bond Obligations, the Debtor’s primary creditor group consists of general unsecured creditors, who are owed approximately $135.3 million as of the Petition Date. This group includes trade creditors and Residents who are owed Entrance Fee Refunds. As of the Petition Date, the Debtor estimates that it owes approximately $3.5 million to Residents on account of Entrance Fee Refunds. The Debtor also has contingent liabilities to Residents in the amount of approximately $129.6 million, on account of Residents’ Entrance Fee Refunds that have not yet been triggered under Residency Agreements. Additionally, the Debtor owes approximately $2.5 million to trade creditors, which is largely due to the timing of the filing of this Chapter 11 Case.
About the Debtor
According to the Debtor: “The Amsterdam at Harborside is sponsored by Amsterdam House Continuing Care Retirement Community, Inc. (AHCCRC), a not-for-profit organization affiliated with Amsterdam Nursing Home, founded in New York City more than 140 years ago. Amsterdam Nursing Home is widely known and highly regarded for providing care and services that meet the highest standards — comprehensive, individualized and deeply committed to serving the interests of residents.
The Davis Declaration adds: "Incorporated in 2004, the Debtor is a New York not-for-profit corporation that has built and operates The Harborside, a best-in-class senior living community which is situated on approximately 8.9 acres in Port Washington, New York and is dedicated to giving its residents an enriching lifestyle. The Harborside is Nassau County’s first and only continuing care retirement community ('CCRC') licensed under Article 46 of the PHL, and offers its senior residents a continuum of care in a campus-style setting, providing living accommodations and related health care and support services to a target market of seniors aged sixty-two (62) and older. The Debtor’s sole corporate member is Amsterdam Continuing Care Health System, Inc. ('ACCHS' or the 'Member), which is also a New York not-for-profit corporation."
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