February 16, 2022 – As directed by the Court at a January 28th hearing, the Debtor has now filed an amended Plan of Liquidation and a related Disclosure Statement [Docket No. 377 and 378, respectively, which do not attach blacklines]. 

At that January 28th hearing, at which the Debtors had hoped to win approval of the Disclosure Statement element of the combined Plan and Disclosure Statement filed on December 30th [Docket No. 336], Judge Harwood directed [Docket No. 365] "the Debtor to submit a revised Plan and Disclosure Statement on or before February 16, 2022" and scheduled a hearing to consider the adequacy of the Disclosure Statement for March 7th.

Judge Harwood's order followed objections filed by various creditors urging the Court to send the Debtor “back to the drawing board” in respect of their Plan and Disclosure Statement; with alleged shortcomings including inadequate information and the impermissable combining of the Plan and Disclosure Statement into a single document. Creditors are also objected to the Debtor's proposal to make a $24.7mn interim payment of asset sale proceeds to bond trustee UMB Bank ($93.0mn of revenue bonds issued in 2017) and to treatment which does not leave them in better shape than they would be in Chapter 7, which is exactly where the Debtor should be according to several of its creditors.

Adding to the Debtor's list of Disclosure Statement-related headaches was an objection from the U.S. Trustee assigned to its case as to proposed third-party releases and an opt-out mechanism for those releases.

Clearly now the combined document has been divided into its separate Plan and Disclosure Statement elements. In addition, the Disclosure Statement now adds a Plan Summary (see below) and a new Class 7 comprised of trade creditors who are to receive an estimated 8% recovery. 

Unchanged is the Debtor's proposed "interim distribution to the Bond Trustee on account of the Bond Claim in the amount of $24,737,796.06 from the Net Sales Proceeds" which is to be considered at the Debtor's March 7th Disclosure Statement hearing.

Plan Overview

The separate Disclosure Statement [Docket No. 378] now adds: “The Debtor believes that the Plan is in the best interest of the Debtor’s creditors, residents, employees, and other parties in interest. In short, the Plan contemplates the following:

• Administrative Expense Claims, Professional Fee Claims, Priority Tax Claims, and U.S. Trustee Fees will be paid in full. The Debtor anticipates that ordinary course Administrative Expense Claims will be paid in the ordinary course prior to the Effective Date of any plan. Professional Fee Claims may vary depending on the length of the confirmation process, but are estimated to be approximately $700,000 related to holdbacks and success fees. The total amount of U.S. Trustee Fees are estimated to be approximately $300,000. The Debtor will update these obligations in the Wind-down Budget included in the Plan Supplement.
• Following the Sale Closing, the Debtor will hold approximately $33 million in Cash, including the proceeds from the Sale and cash on hand. The Debtor will establish the Contested Claim Reserve in the amount of $10,118,514.15 for the benefit of SBW and the Mechanics Lienholders and a Wind Down Reserve.
• Holders of Claims in Class 1 (Priority Unsecured Claims) and Class 5 (Other Secured Claims) are unimpaired and will be paid in full.
• Holders of Claims in Class 2 (Bondholder Secured Claims) will receive the Net Sale Proceeds and, subject to further order of the Bankruptcy Court, the remaining balance of the Contested Claim Reserve and the Wind Down Reserve.
• Holders of Claims in Class 3 (SBW Secured Claims) are impaired and following further order of the Bankruptcy Court, will either receive payment from the Contested Claim Reserve or will be treated as a General Unsecured Claim.
• Holders of Claims in Class 4 (Mechanics Lien Claims) are impaired and following further order of the Bankruptcy Court, will either receive payment from the Contested Claim Reserve or will be treated as a General Unsecured Claim.
• Holders of Claims in Class 6 (General Unsecured Claims) are impaired and will receive no distribution under the Plan.
• Holders of Claims in Class 7 (Trade Claims) will receive their Pro Rata Share of the Trade Claim Distribution of $63,181.31.”

The following is an amended summary of classes, claims, voting rights and expected recoveries, changes highlighted in blue (defined terms are as defined in the Plan and Disclosure Statement): 

• Class 1 (“Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 2 (“Bond Claim”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $64,642,667.12 and expected recovery is 38.36% – 51.05%. Each holder will receive, on behalf of the Holders of the Bondholder Secured Claim, (i) on the Effective Date or as soon as practicable thereafter, the Net Sale Proceeds and the Excluded Assets, including the Debtor’s Cash on hand on the Effective Date, subject to the amounts required to fund the Wind Down Reserve; (ii) as directed by subsequent order of the Bankruptcy Court, the balance of the Contested Claim Reserve; and (iii) any funds remaining in the Wind Down Reserve after payments of applicable obligations.
• Class 3 (“SBW Secured Claim”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,867,407.74 and expected recovery is 0% – 49.62%. Each Holder will receive: a. Payment, in Cash from the SBW Reserve of the amount the Bankruptcy Court determines that SBW is entitled to on account of its pari passu interest in the Purchase Price and/or the Excluded Assets to which its Lien applies; and/or b. Treatment as a General Unsecured Claim for the SBW Deficiency Claim.
• Class 4 (“Mechanics Lien Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $6,335,660.77 and expected recovery is 0% – 100%. Each Holder will receive: a. Payment in full, in Cash, from the Mechanics Lien Reserve if the Bankruptcy Court determines that the Liens of the Mechanics Lienholders are superior to that of the Bond Trustee and a Final Order is entered regarding the actual amount of the Allowed Mechanics Lienholder Claims is determined by a court of competent jurisdiction; or b. Treatment as a General Unsecured Claim if the Bankruptcy Court determines that the Liens of the Mechanics Lienholders are not superior to that of the Bond Trustee.
• Class 5 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 6 (“General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 7 (“Trade Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $790,230.45 and expected recovery is 8% (share of $63k pool noted above). Each Holder shall receive, in full and complete satisfaction, settlement, discharge, and release of, and in exchange for, its Allowed Trade Claim, its Pro Rata share of the Trade Distribution.

⁴ These amounts represent estimated Allowed Claims, and do not represent amounts actually asserted by creditors in Proofs of Claim or otherwise. The Debtor has not completed its analysis of Claims in the Chapter 11 Case, and objections to such Claims have not been Filed and/or fully litigated and may continue following the Effective Date. Therefore, there can be no assurances of the exact amount of the Allowed Claims at this time. Rather, the actual amount of the Allowed Claims may be greater or lower than estimated.
⁵ The estimated percentage recovery is based upon, among other things, an estimate of the Allowed Claims in the Chapter 11 Case. As set forth above, the actual amount of the Allowed Claims may be greater or lower than estimated. Thus, the actual recoveries may be higher or lower than projected depending upon, among other things, the amounts and priorities of Claims that are Allowed by the Bankruptcy Court.
⁶ As described in Section V(B)(4), the Bond Trustee and SBW dispute the extent to which SBW’s Liens attach to the Purchase Price and/or Excluded Assets. Should the Bankruptcy Court determine that SBW’s Liens do attach to the Purchase Price and/or Excluded Assets, SBW would be entitled to a pro rata amount of the SBW Secured Claim subject to the Intercreditor Agreement.
⁷ As described in Article Section V(B)(4), the Bond Trustee and the Mechanics Lienholders dispute the priority of their respective Liens. Should the Bankruptcy Court determine that the Mechanics Lienholders’ Liens are superior to the Bond Trustee, the Mechanics Lien Claims will be paid in full at an amount determined in the appropriate venue.
⁸ This estimate does not include any Deficiency Claims. Depending on the Bankruptcy Court’s rulings with respect to the Contested Claims Reserve, Class 6 may include the Claims of the Bond Trustee, Mechanics Lienholders, and/or SBW.

Proposed Key Dates:

• Voting Deadline: Earliest of March 7, 2022 or the entry of the Interim Approval and Procedures Order. 
• Disclosure Statement Hearing: March 7, 2022
• Deadline to Object to Plan: TBD
• Confirmation Hearing: TBD

Background

On August 30th, The Prospect-Woodward Home (dba Hillside Village Keene, “Prospect-Woodward” or the “Debtor") filed for Chapter 11 protection noting estimated assets between $10.0mn to $50.0mn; and estimated liabilities between $50.0mn and $100.0mn. At filing, the Debtor, which operates an assisted living home in Keene, NH, cited "the discovery of significant construction defects upon the opening of its new facility coupled with the governmental emergency orders resulting from the COVID-19 global pandemic" as leaving it "unable to achieve its marketing goals and generate sufficient revenue from the sale of life care contracts to fulfill its obligations under its long-term tax-exempt bond indebtedness…" and hence necessitating bankruptcy protection.

Asset Sale

On November 22, 2021, the Court hearing the Prospect-Woodward Home case issued an order approving a $33.0mn sale of substantially all of the Debtor’s asset to Covenant Living Communities and Services (the “Purchaser” or “Covenant”) [Docket No. 317].

On November 1, 2021, further to a September 21st bidding procedures order [Docket No. 206], and absent any qualified bids beyond that of Covenant, the Debtor notified the Court that it had cancelled a November 3rd auction and named Covenant as the Successful Bidder [Docket No. 282].

The Purchaser describes itself as “one of the largest not-for-profit retirement living organizations in the nation, with 16 communities in nine states.”

On February 15, 2022, the sale closed.

Prepetition Indebtedness

As of the Petition Date, the Debtor owes a total of approximately $96,856,450.46 consisting of bond obligations, construction loan obligations and unsecured obligations (collectively, the “Debt Obligations”).

Interim Distribution Motion

The motion [Docket No. 338] states, “As set forth more fully in the Final Cash Collateral Order, the Bond Trustee has a valid first priority security interest in substantially all of the Debtor’s assets, except for gross receipts, where SBW has a pari passu lien pursuant to that certain Intercreditor Agreement dated as of April 22, 2019 between the Debtor the Issuer, the Bond Trustee and SBW (the 'Intercreditor Agreement'). As of the Petition Date, the Bond Trustee has a claim of at least $64,642,667.12 (the 'Bond Claim'). As of the Petition Date, SBW has a claim of at least $1,867,407.74 (the 'SBW Claim').

As detailed in the First Day Declaration, prior to the Petition Date, MacMillin Company, LLC ('MacMillin') and (collectively, the 'Mechanics Lienholders') and the Debtor were involved in construction related litigation in the Cheshire County Superior Court of New Hampshire (the 'State Court'). On October 25, 2019, the State Court issued an opinion for attachment purposes pursuant to N.H. REV. STAT. ANN. ('RSA') § 447:12 for the Mechanics Lienholders in the aggregate amount of $6,335,660.77 (the 'Aggregate Mechanics Lienholder Claim').

During the Chapter 11 Case, certain Mechanics Lienholders have alleged that their security interests are superior to that of the Bond Trustee. The Bond Trustee and the Debtor have disagreed. Additionally, the Debtor believes the Aggregate Mechanics Lienholder Claim is subject to offsetting claims for construction defects in the amount to $3,000,000."

The interim distribution  motion further states, "The Debtor and [asset purchaser] Covenant anticipate that the Closing Date will occur by February 1, 2021. However, regardless of when the Closing Date occurs, the Debtor requests that that the Court authorize the Interim Distribution of $24,737,796.06 on account of net sale proceeds which the Bond Trustee has an undisputed first priority lien on, which shall be applied by the Bond Trustee to reduce the allowed Bond Claim:

The allowed Bond Claim of $64,642,667.12 far exceeds the Purchase Price of $33,000,000. While the Debtor believes that the Bond Trustee has a valid first priority on substantially all of the Debtor’s assets, the Bond Trustee has agreed to temporarily leave approximately $8,262,203.94 in the Debtor’s estate (the ‘Reserve’) to fund a plan process and on account of claims by SBW and the Mechanics Lienholders. The Reserve will maintain the status quo while the Court determines the relative priority of the claims of the Bond Trustee, SBW and the Mechanics Lienholders.

Therefore, the Debtor submits it is a valid exercise of its business judgment to make the Interim Distribution to the Bond Trustee on the Closing Date”.

_{FN: While the SBW Claim is $1,867,407.74, there is a dispute between the Bond Trustee and SBW as to whether SBW’s liens attach to the Purchase Price and other Excluded Assets (as defined in the Sale Order). If SBW’s lien do attach to the Purchase Price, pursuant to the intercreditor agreement, SBW would be entitled to its pro rata share of the Purchase Price, $926,543.17.}

Liquidation Analysis (see Docket No. 381 for notes)

About the Debtor

According to the Debtor: “One-of-a-kind Hillside Village Keene retirement community opened its doors to residents in 2019. We’re a casual, warm and welcoming not-for-profit senior living community of like-minded — yet-open-minded — down-to-earth people who value culture, initiative, diversity, personal growth, volunteerism, camaraderie and generosity.”

The Debtor further states, “Hillside Village Keene, Senior Living Community, is managed by industry leader Life Care Services®, an LCS® Company, based in Des Moines, Iowa. Since 1971, Life Care Services has provided operations management, marketing and sales management for life plan communities, independent living, and assisted living, memory care, and health services nationwide.”

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