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July 24, 2023 – The Debtor requested Court authority to access $12.8mn of debtor-in-possession (“DIP”) financing to be provided by the California Statewide Community Development Authority (the “CSCDA”*) through program administrator, White Oak Global Advisors, LLC** [Docket No. 87, with the Assessment Contract at Exhibit 2 of Docket No. 88].
*The California Statewide Communities Development Authority (CSCDA) was created in 1988, under California's Joint Exercise of Powers Act, to provide California's local governments with an effective tool for the timely financing of community-based public benefit projects.
**White Oak Global Advisors is an SEC-registered investment advisor specializing in providing financing solutions to support the growth and business needs of small and medium enterprises (“SMEs”) throughout their lifecycle.
The DIP financing comes further to (and is a requirement of) a settlement reached with prepetition secured lender JKO Group, LLC ("JKO"), with a motion to approve that settlement filed at Docket No. 79. As detailed in the table below, JKO is set to receive @$8.2mn from the proceeds of the loan at which point all issues related to the JKO loan will be settled and the Debtor will seek to have its case dismissed.
On August 16, 2022, Global Premier Regency Palms Oxnard, LP (“Regency Palms Oxnard” or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy noting estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $10.0mn and $50.0mn. At filing, the Debtor, which owns an assisted living/memory care facility in Oxnard, California (dba Regency Palms Senior Living), cited the impact of COVID on delaying completion of its facility, and once opened, hampering its ability to attract/admit residents. Those operational shortcomings soon left it unable to make interest payments on its senior debt and, following several attempts to delay/forestall foreclosure efforts by secured lender JKO*, the scheduling of an August 18, 2022 foreclosure sale.
*On April 22, 2022, JKO purchased 100% of amounts outstanding ($23.5mn principal; with JKO's claim now set at $30.5mn) under a 2018 credit facility with Nano Banc. Details as to purchase price were not disclosed, but clearly it was deeply distressed at time of purchase. Who is JKO? A California limited liability company based in Long Beach, California. The settlement agreement is signed by Michael Kluchin of Continuum Analytics, which notes that it specializes "in the niche distressed debt and value-add property market. We utilize state-of-the-art data-driven strategies for acquisitions."
On January 4, 2023, the Court hearing the Global Premier Regency Palms Oxnard case extended (for a first time) the periods during which the Debtor has an exclusive right to file a Plan and solicit acceptances thereof, through and including March 13, 2023 and June 14, 2023, respectively.
The DIP Financing Motion
The motion [Docket No. 87] states, “The proposed DIP Financing is critical to the Debtor’s ability to emerge from Chapter 11 and pave the way to pay its creditors. The Debtor cannot afford to incur the expense of litigating an anticipated hotly contested plan confirmation process, nor face the risk of the severe consequences (losing all of its assets to its senior secured creditor) in the event it was unable to successfully confirm a plan of reorganization. The Debtor has reached an agreement with its senior secured creditor, JKO Group, LLC (‘JKO’), which provides for a restructuring of the Debtor’s obligations, and requires the DIP Financing. The agreement with JKO eliminates the risks and significant costs associated with plan confirmation in this case, and paves the way for prompt emergence from Chapter 11 and payment to creditors. In order to effectuate the JKO compromise and disposition of this case, the Debtor must promptly obtain DIP Financing. The Debtor believes that approval and use of the DIP Financing provides creditors with the greatest opportunity for payment, and thus is in the best interest of creditors.
…The Debtor owns and since January 2021, with its wholly owned non-debtor subsidiary, Global Regency Oxnard Senior Care Services LLC, a California limited liability company, dba Regency Senior Living, operates an assisted living/memory care facility located at the Property. Regency Senior Living provides housing and a full spectrum of care and services to fragile seniors in need of a moderate level of medical assistance, including specialized memory care for seniors who suffer from Alzheimer’s Disease and other forms of dementia. The Debtor’s subsidiary employs approximately 60 persons. The Debtor’s sole revenue source is the rental income and distributions, if any, from its sole tenant, Regency Senior Living. Since the Debtor’s completion of the development of its Property and Regency Senior Living’s commencement of its operations is in the relative early phase of a start-up, Regency Senior Living does not yet generate sufficient profits to pay rent to the Debtor. Accordingly, the Debtor cannot currently pay its obligations to JKO.”
The motion further provides, “The CSCDA established the CSCDA Open PACE Program to allow the financing or refinancing of certain distributed generation renewable energy sources, energy efficiency improvements, water efficiency improvements, seismic strengthening improvements, electric vehicle charging infrastructure and such other work, infrastructure or improvements as may be authorized by law from time to time that are permanently fixed to real property (collectively, the ‘Authorized Improvements’) through the levy of contractual assessments pursuant to Chapter 29 of Part 3 of Division 7 of the Streets and Highways Code (‘Chapter 29’) and the issuance of improvement bonds under the Improvement Bond Act of 1915 (Streets and Highways Code Sections 8500 and following) upon the security of the unpaid contractual assessments. The CSCDA provides financing to property owners only for Authorized Improvements. The CSCDA obtains its source of financing and refinancing of the installation of Authorized Improvements from proceeds of California Statewide Communities Development Authority Open PACE limited obligation improvement bonds.
The semi-annual payment obligations required to be paid by borrower are called ‘Assessments,’ and are actually included in, and become part of, the building owner’s real property tax bill. Pursuant to California statute, the Assessments are secured by a statutory lien against the borrower’s real property, coequal to and independent of the county’s real property tax lien, senior in priority to all existing secured creditors. California law provides for the sale of the borrower’s real property to collect delinquent installments and related penalties, interest and costs; amounts that have not yet been billed may not accelerated. The CSCDA’s lien shares para passu priority with the County for any unpaid property taxes.
The Debtor has applied with, and been qualified by, the CSCDA for PACE financing of up to $12,800,000 from the CSCDA’s program administrator, White Oak. An affiliate of White Oak will purchase the limited obligation improvement bonds sold by the CSCDA to provide financing to the Debtor. In order to obtain the PACE financing, the Debtor seeks authority to enter into the Assessment Contract…”
In a declaration [Docket No. 88] in support of DIP Financing motion and to shorten time for hearing on the motion, Christine Hanna general partner of the Debtor states, “Based on the terms of the Compromise, the Debtor must obtain Court approval and close on the DIP Financing such that the Debtor is able to pay JKO prior to August 15, 2023. Therefore, in order to successfully emerge from Chapter 11 and provide the Debtor more time to try to pay its creditors, the Debtor needs to shorten the time for the hearing on the Financing Motion such that it is heard in time to pay JKO before August 15, 2023.
Based on the Court’s calendar and the Court already having scheduled a hearing on the approval of the Compromise for August 8, 2023, the Debtor respectfully requests that the Court grant this Ex Parte Application and schedule the hearing on the Financing Motion for August 8, 2023. I believe that approval of the foregoing is in the best interests of the estate.
… If time is not shortened, the Debtor bears significant risk of losing its property and wiping out all creditors.”
Key Terms of DIP Facility
- Borrower: Global Premier Regency Palms Oxnard, LP, a California limited partnership
- Lender: California Statewide Communities Development Authority (the “CSCDA”)
- Administrator: White Oak Global Advisors, LLC
- Financing Amount: The lesser of (i) $12,800,000 or (ii) 30% of Property’s as-stabilized value as determined by DIP Lender in its sole discretion (the “Financing Amount”).
- PACE Financing: $12.8mn
- Roll Up: N/A
- Interest Rate: Fixed rate throughout the Term to be equal to the greater of:
- 7.50%; and
- The 10-year U.S. Treasury benchmark rate plus 3.50%.
- Prepayment Premium: Prepayment of the DIP Financing would be subject to the following premiums:
- Year 1: 5.0%
- Year 2: 3.0%
- Years 3-4: 1.0% and Thereafter: None.
- Transaction Fee: On the Closing Date from Financing proceeds, Owner would pay to capital provider a transaction fee equal to 1.00% of the Financing Amount.
- Setup and Servicing Fee: The following would be due in full and in cash so long as the DIP Financing has not been repaid in full:
- On the Closing Date, the Debtor would pay White Oak a Setup Fee equal to $1,500. The Debtor would also pay to White Oak an annual Servicing Fee equal to $1,750 per year, payable in advance with pro rata installments due on the Closing Date and each Payment Date thereafter.
- Each of the foregoing fees, once paid, would be non-refundable for any reason whatsoever.
- Other Fees and Expenses: The Debtor would be required to pay White Oak’s due diligence, legal and other related out-of-pocket DIP Financing expenses. The Debtor would also be responsible for any fees and expenses charged by CSCDA, Depositary Agent, Disbursement Agent, Bond Indenture Trustee, or other third party, including their legal fees. All such amounts would be eligible uses of DIP Financing proceeds. The following are White Oak’s good-faith estimates but are subject to final determination by each respective party:
- Maturity: The lesser of (i) 30 years and (ii) the cost-weighted expected useful life of funded improvements.
- Use of Proceeds: The Financing will utilize the CSCDA’s three-year lookback period to refinance PACE-eligible improvements already completed to the Property. Accordingly, proceeds remaining after funding (i) Capitalized Interest and (ii) fees and costs associated with the DIP Financing may be used in accordance with Debtor’s plan of reorganization (the “Net Proceeds”), including to repay existing indebtedness and/or fund operations. The Debtor may use the proceeds from the DIP Financing as set forth in the DIP Order and the cash flow budget attached as Exhibit 3 to the Weissman Declaration.
- Assessment Payments: Assessment Payments will be due concurrently with ad valorem property taxes every December 10 and April 10, starting with December 10, 2025 (the “Payment Dates”) (Assessment Payments are not due before December 10, 2025 because interest on the DIP Financing will be capitalized through September 2, 2025). On Payment Dates up to and including September 2, 2030, no principal repayments will be required. Starting on December 10, 2030 and throughout the remaining Term, the Debtor would be required to make payments of approximately $588,000 on each Payment Date.
Events Leading to the Chapter 11 Filing
The Debtors provide [see Docket No. 79]: "Similar to many other companies, in 2020, the Debtor experienced significant financial and operational challenges as a result of the COVID-19 pandemic. In the course of building its assisted living/memory care facility, the outbreak of COVID-19, and the subsequent shutdown and imposition of restrictions, caused construction delays and cost overruns for the Debtor’s project. A Certificate of Occupancy was ultimately issued on June 17, 2020, and thereafter a license was issued by the Department of Social Services. It was only at this time when the Debtor was first authorized to begin to accept residents into its facility.
While the facility opened in January of 2021, the COVID-19 pandemic continued to negatively impact nursing homes and senior care facilities like the Debtor’s business by restricting the Debtor’s ability to accept residents into its facility. These restrictions caused unexpected delays in the Debtor’s ability to receive residents in the assisted living facility during 2021 and into 2022. Pursuant to its loan obligations, the Debtor was required to make monthly interest payments in the amount of $129,202. The interest payments were set up in the loan through an account called an 'interest reserve.' When the loan was originally funded, $1,196,000 of the loan amount was placed in this interest reserve account. Every month, monthly interest payments would be paid from that interest reserve account. In October of 2021, the Debtor entered into discussions with its bank for a COVID-19 forbearance agreement, which would have prevented the loan from going into default at that time.
The discussions were unsuccessful.
On or about April 22, 2022, the Debtor was informed that its bank sold the Debtor’s loan to JKO. On April 25, 2022, the Debtor received a Notice of Default and Election to Sell Under Deed of Trust recorded in the Official Records, County of Ventura, Doc No. 2022000005980.
Pursuant to this notice, the Trustee Sale was scheduled for May 17, 2022.
On May 6, 2022, the Debtor commenced a lawsuit against JKO seeking, among other things, a temporary restraining order, preliminary injunction, and permanent injunction, to enjoin the JKO from proceeding with the Trustee Sale. On May 10, 2022, the state court granted the Debtor’s ex parte application for a temporary restraining order. The state court, however, ultimately denied the Debtor’s request for injunctive relief. The temporary restraining order issued on May 10, 2022 was dissolved. The Trustee Sale was rescheduled and continued from time to time until August 18, 2022, prior to which the Debtor filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code.
About the Debtor
According to the Debtor: “Regency Palms Oxnard offers a full spectrum of services for our most independent residents to those who need various levels of assistance to those in need of specialized memory care. We take pride in providing the best care and experience to area seniors and partnering with families who entrust us with the wellbeing of their loved ones."
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