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Relevant Documents:
Notice (June 7, 2021)
Notice (Feb. 11, 2021)
Notice (Dec. 29, 2020)
Notice (July 24, 2020)
Notice (Oct. 15, 2020)
Issue Details
Cambia Hills of East Bethel, a youth-focused psychiatric residential treatment facility in East Bethel, Minn., is likely to “close in the near future” and be “unable to remain a going concern,” absent “a material change in circumstances,” according to a statement that U.S. Bank - the indenture trustee on the facility’s $27 million in healthcare facilities revenue bonds - made in a June 7 EMMA posting. The facility “has encountered continued delays implementing the recovery plan” that it developed upon opening behind schedule in April 2020, resulting in continuing financial distress and noncompliance with the forbearance agreement that had been in place since December last year. According to the June 7 notice,
Cambia Hills’ parent entity and guarantor on the bonds is also “encountering its own financial distress and is pursuing strategic alternatives” and, “absent a timely affiliation or other transaction … may be unable to remain a going concern” (emphasis added).
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In 2018 the Duluth Economic Development Authority issued the bonds to develop the 64-bed Cambia Hills facility. Cambia Hills is owned and operated by The Hills Youth and Family Services, which also owns and operates a juvenile rehabilitation facility and an after-school and summer program, each located in Duluth, according to the
offering memorandum for the bonds. The bonds are secured by, among other things, all or substantially all of the real and personal property associated with the Cambia Hills facility, according to the OM.
Cambia Hills has been in financial distress since its inception. The facility opened four months later than planned, in April 2020, resulting in a roughly $1.8 million adverse impact on revenue, according to U.S. Bank’s July 24, 2020, EMMA notice. Since then, the facility has pursued a “recovery plan,” which included the parent entity both providing funds to make the scheduled June 1, 2020, debt service payment and obtaining a $550,000 loan in August 2020 for additional working capital for the facility, according to an Oct. 15, 2020, EMMA posting. Still, the facility was not able to remit monthly installment payments to U.S. Bank earmarked for the Dec. 1 debt service payment on the bonds, resulting in events of default, the notice says.
In addition to financial distress, the facility faced operational challenges since opening. For example, the facility’s progress in hiring staff happened “at a slower rate than … anticipated in the initial recovery plan.” As a result, the facility retained FTI Consulting to assist it “in managing ongoing financial and operational issues at the Facility,” according to the Oct. 15, 2020, notice.
The facility has also faced regulatory challenges, including citations for regulatory compliance issues by the Minnesota Department of Health and Minnesota Department of Human Services. The Oct. 15 EMMA disclosure also notes that the corporation’s COO resigned in August 2020.
In December 2020, Cambia Hills, its parent company and the bond trustee entered into a forbearance agreement after consultation by the trustee “with holders or investment advisors for in excess of 87% in principal amount of the Bonds … and formal direction from the largest institutional holders of the Bonds,” according to a Dec. 29, 2020, EMMA posting.
According to U.S. Bank, the forbearance agreement contemplates:
- An agreement by the trustee to defer the exercise of remedies through June 30, 2021;
- The company’s compliance with an approved budget reviewed by FTI;
- An additional pledge of assets as collateral for the bonds, including accounts receivable;
- Enhanced reporting to the bond trustee;
- Ongoing efforts to implement a more viable Medicaid reimbursement rate by May 1;
- Additional debt, lien and asset sale covenants;
- Continued retention of FTI;
- U.S. Bank advancing up to $1.55 million of indenture-held funds to support ongoing business operations; and
- For U.S. Bank to commence a trust instruction, or TIP, proceeding.
U.S. Bank commenced theTIP proceeding in the Ramsey County Minnesota District Court to implement the forbearance agreement and otherwise facilitate the recovery plan, according to the Dec. 29, 2020, EMMA posting. According to a Feb. 11 EMMA notice, on Feb. 10 the TIP court entered an order approving the forbearance agreement and setting forth various related relief.
Nevertheless, Cambia Hills has defaulted under the forbearance agreement, according to the June 7 notice, having breached its daily occupancy covenant and the obligation to obtain an adjustment to its Medicaid reimbursement rate by May 1. U.S. Bank also states that Cambia Hills needs more than $1.4 million in additional cash through the end of 2021. In addition, Cambia Hills’ general contractor, Kraus-Anderson Construction Co., sued Cambia Hills on May 10 over alleged past-due payment obligations for constructing the facility and is “seeking to foreclose a mechanics’ lien in the amount of $376,601.33, and for certain other relief,” according to the June 7 notice.