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October 3, 2022 – Further to an August 11th bidding procedures order [Docket No. 246] and following an auction for the Debtors assets held on October 3rd (adjourned from September 30th), the Debtors notified the court that they had designated 4646 Nine Mile Point Road LLC ($8,797,500 bid) as the "prevailing bidder" with Centers for Care LLC ($8,547,500 bid) named as the back-up bidder, for their assets [Docket No. 263]. APAs (blacklined against the APA of stalking horse Eastside Senior Care, Inc. an affiliate of Friendly Senior Living, which had pursued some form of combination with the Debtors…both are Rochester, NY nursing homes… since 2018) for each of the prevailing and back-up bidders are attached to the notice.
The prevailing bidder's APA provides that notice is to be given to David Katz of Brooklyn-based TL Management.
The stalking horse, which had paced bids with a $8.25mn bid (and had negotiated a break-up fee of $247,500) does not appear to have advanced its opening bid. The Debtors' notice as to the auction results adds some confusion, noting as to each of the two top bids, offers of $14.3mn and $14.2mn, respectively; with neither of those figures appearing in the APAs.
A sale hearing remains scheduled for October 11th.
On August 11th, the Court hearing the Fairport Baptist Homes cases issued an order: (i) approving bidding procedures in respect of the sale of substantially all the Debtors’ assets, (ii) authorizing the Debtors to enter into stalking horse arrangements with Eastside Senior Care, Inc.* an affiliate of Friendly Senior Living (the “Stalking Horse,” a New York not-for-profit corporation; $8.25mn bid) and (iii) approving an auction/sale timetable (revised) culminating in an September 30th auction and an October 11th sale hearing [Docket No. 246]. The Stalking Horse APA is attached to the bidding procedures motion at Exhibit A (p.36) with the Debtors committed to filing an amendment to the APA reflecting Court approved/mandated changes by August 23rd.
*The present in-court sale process followed a lengthy period of negotiations between the two Rochester, NY area senior care facility operators; with COVID 19 ultimately delaying a business combination that should have been completed in 2020 and then complicating matters further as the Debtors fared considerably less well than the Stalking Horse during the pandemic.
Following mid-July objections from the U.S. Trustee assigned to the Debtors’ cases (the “U.S. Trustee”) and the Debtors' Official Committee of Unsecured Creditors (the “Committee”) [Docket Nos. 211 and 212, respectively], bidding procedures have been amended to remove an expense reimbursement from the Stalking Horse's bidder protections and to extend the auction/sale timeline.
The U.S. Trustee had viewed the combination of a 3% break-up fee and a $250k expense reimbursement (representing approximately 6% of the proposed purchase price) as bid chilling and the Committee had sought a longer, more fulsome and more inclusive sale process that "will actually maximize the value of the Debtors’ assets" rather than simply look to generate sales proceeds intended to cover the exposure of senior lender Berkadia Commercial Mortgage LLC.
The Debtors' bidding procedures motion [Docket No. 142] states, “…the Debtors started negotiations in 2018 with another very well respected and highly regarded local senior care owner-operator, Rochester Friendly Home (‘Friendly Home’), to establish an affiliation between the organizations based on findings that the organizations were very compatible, had complementary lines of business, and could take advantage of significant cost savings and other efficiencies.
The parties diligently pursued the transaction, with both sides engaging in extensive due diligence, to the point that they planned to announce the affiliation in June 2020 and complete the process by the end of that year.
Although the COVID-19 pandemic forced the parties to put the process on hold, they remained engaged with the hope of still pursuing the affiliation.
Unfortunately,…the Debtors were unable to ‘weather the storm’ of the pandemic as well as Friendly Home and received expert analysis that they would not recover sufficiently to survive long-term. As a result, the discussions shifted in the fall of 2021 to Friendly Home acquiring the Debtors’ assets and taking over operations, most likely via bankruptcy.
Over the course of the following months, the Debtors and Friendly Home each retained outside professionals to analyze and provide legal counsel for the potential transaction. The parties also sought professional guidance to further explore and implement efficiencies within the Debtors’ operations; thus, making them a more viable and appealing acquisition for Friendly Home.
By the spring of 2022, the Boards of Directors for the Debtors and Friendly Home had all approved a sale transaction through the Chapter 11 bankruptcy process…”
The motion continues, “There are numerous factors supporting a very prompt sale of the Debtors’ assets:
- Limited Finances – The Debtors may appear break-even at this point, but that is only because they are not currently servicing any debt. Add those obligations to the financial equation and the Debtors will not make it to year-end.
- Industry Adversity – The entire senior care industry throughout the U.S. is struggling, as evidenced by the trend of mergers, affiliations and similar transactions. Simply put, it is getting impossible for free-standing operators to survive, particularly in New York.
- Residents & Staff – The Friendly Home transaction provides a path of continued care for the residents and potential employment for the staff. Any delay in selling the Debtors’ asset will only lead to confusion, concern and potential exits, while also putting all of these critical individuals at risk.
The years-long negotiations, intimate knowledge of each other’s operations and importance to the greater Rochester community, all reflect a seemingly perfect fit between the Debtors and Friendly Home. Given these facts and the Debtors’ lack of available resources, they were not in a position to conduct a pre-bankruptcy marketing campaign. However, through the bankruptcy sale process and retention of experienced professionals, the Debtors are prepared to entertain any and all interested parties. This includes a targeted marketing process and access to a robust on-line data room for potential bidder due diligence.”
About the Debtors
According to the Debtors: “Fairport Baptist Homes provides a complete array of senior support services, housing and living options — including independent and assisted living, skilled nursing and rehabilitation."
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