CASE SUMMARY: Buckingham Senior Living Community Enters Chapter 11 to Refinance $140M of Secured Muni Bonds, Address Resident Obligations; Has PSA With 69% of Bondholders

DIP Financing Motion

The company requests approval of up to $3.4 million in superpriority, priming, senior secured DIP financing, with up to $1.5 million on an interim basis, from bond trustee UMB Bank. The DIP financing bears interest at 5.625%, with 7.625% for the default rate, and matures on the earlier of an event of default or Oct. 6.

The DIP proceeds may be used to finance the debtor’s ongoing working capital needs, fund the maintenance and preservation of the community and pay the administrative fees of the case.

To secure the DIP financing, the debtor proposes to grant first priority liens on all assets against the debtor’s assets except for avoidance actions or their proceeds and charitable assets and superpriority administrative expense claim. The DIP liens would remain subject to the permitted liens and the carve out.

The facility contemplates the reimbursement to UMB Bank for its reasonable out-of-pocket expenses and trustee fees, as well as the reasonable fees and expenses of the trustee’s attorneys and advisors.

As a condition to obtaining the DIP financing, the debtor made various stipulations, including:

• The bond claim is a valid claim in an aggregate principal amount of not less than $140.34 million;


• There are no offsets, defenses or counterclaims to the bond claim, and no portion of the bond claim is subject to recharacterization, disallowance, reduction or subordination;


• The bond claim constitutes an allowable secured claim;


• The debtor has irrevocably waived, discharged and released any rights it may have to challenge or object to the bond claim, and/or to challenge or object to the security for the bond claim;


• The $5.5 million in trustee-held funds are held in trust for the bondholders, or, in the alternative, the debtor acknowledges that the trustee holds a valid perfected possessory security interest in the trustee-held funds; and


• The debtor will file an escrow motion seeking authority to deposit all entrance fees collected postpetition into a newly established escrow account and, subject to entry of an order, to return the escrowed fees to new residents under the certain circumstances.

The debtor also requests authority to use the cash collateral of UMB Bank. The company proposes the following adequate protection to its prepetition trustee: (i) “rollover” liens (subject to the postpetition liens, permitted liens and the carve-out); (ii) allowed superpriority administrative expense claims; (iii) supplemental liens on the debtor’s assets, exclusive of the charitable assets, the avoidance actions and their proceeds (subject to the postpetition liens, permitted liens and the carve-out) and (iv) financial reports.

In addition, the debtor proposes a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).

The carve-out is $200,000. The proposed carve-out for any official committee of unsecured creditors is the “unpaid dollar amount of the fees and expenses of professionals retained by the Committee, if any, to the extent (i) incurred or accrued prior to the occurrence of an Event of Default and remaining unpaid, and (ii) provided for under the Budget.”

The challenge period for any official committee of unsecured creditors is 45 days from its formation. The debtor agrees not to use the prepetition collateral or its proceeds to investigate or prosecute claims against UMB Bank, including avoidance actions.

The proposed budget for the use of the DIP facility is HERE.

The DIP financing is subject to the following milestones (which differ from the restructuring term sheet milestones, as described below):

• July 12: Entry of the final DIP order;


• July 27: Approval of the disclosure statement and solicitation procedures;


• July 30: Begin solicitation;


• Sept. 22: Confirmation of the plan; and


• Oct. 12: Effective date.

Plan / Disclosure Statement

Below is a chart of the plan’s classes, along with their impairment status and voting rights.

Treatment of Claims and Interests

The debtors’ plan sets forth the following classification of and proposed distributions to holders of allowed claims and interests:

• Class 1 - Priority non-tax claims: At the election of the reorganized debtor, payment of cash in full (to be paid out of available cash or if available cash is insufficient, then from proceeds of the Series 2021A bonds) or such other agreed treatment to render the claim unimpaired.


• Class 2 - Secured bond claims: Allowed in the aggregate principal amount of $140.3 million (plus costs and expenses of the trustee and its professionals). Holders of existing Series 2007, Series 2014 and Series 2015 bond claims would exchange their outstanding bonds for a pro rata share of Series 2021B bonds issued in the aggregate principal amount of $140.3 million.


• Class 3 - Miscellaneous secured claims: At the election of the reorganized debtor (with the prior written consent of the bond trustee), treatment in accordance with Bankruptcy Code section 1124 as may be determined by the bankruptcy court, payment in full in cash, delivery of the collateral securing the claim and “paying any interest fees, costs and/or expense required to be paid under Bankruptcy Code section 506(b)” or “providing such Holder with such treatment in accordance with Bankruptcy Code section 1129(b) as may be determined by the Bankruptcy Court.”


• Class 4 - Charter refund obligation claims: Cash payment equal to the full amount outstanding to such holder as set forth on this schedule, to be paid from the proceeds of the Series 2021A bonds.


• Class 5 - Prepetition refund queue claims: Pro rata cash payments made semiannually to the extent that on such semiannual dates the reorganized debtor has operating cash in excess of 150 days cash on hand until such time as the allowed prepetition refund queue claims are paid in full.


• Class 6 - Current resident claims: Unaltered and unaffected by the plan; current residence agreements assumed by debtor and claims paid in ordinary course. “For the avoidance of doubt, to the extent a Current Resident becomes entitled to a Refund Claim after the Petition Date, but before the Effective Date, such Refund Claim will be paid in the ordinary course of business in accordance with the applicable Residence Agreement.”


• Class 7 - Trade claims: Payment in full in cash, to be paid from the debtor’s available cash, or if available cash is insufficient, any shortfall would be paid from the proceeds of the Series 2021A bonds.


• Class 8 - General unsecured claims (including secured bonds deficiency claim and “any claim of a Resident (under such Resident’s Residence Agreement or otherwise), except for a Refund Claim”): “Pro Rata share of a payment to be made by the Reorganized Debtor on or as soon as reasonably practicable after the Effective Date in the amount of $____; provided, however, that the Holders of Secured Bond Claims will receive no distribution on account of their Secured Bonds Deficiency Claim but shall have the right to vote such claims in Class 8.”

DIP facility claims would be satisfied in full by an exchange for Series 2021B bonds in connection with the debt service reserve fund requirement.

Plan Milestones

The restructuring milestones contemplated under the restructuring term sheet are as follows:

• June 28: Petition date;


• July 5: Entry of interim DIP order;


• July 23: Entry of final DIP order:


• Aug. 9: Approval of DS and solicitation procedures;


• Aug. 13: Plan solicitation;


• Sept. 20: Plan confirmation; and


• Oct. 5: Plan effective date.

Releases

The plan provides for releases of the debtor, the special resident committee, the DIP lender, bond trustee, master trustee and the bondholders.

Series 2021A Bonds

The Series 2021A bonds, bearing interest at 7.5% (interest-only for the first four years), maturing in 16 years, would be issued in the principal amount of $28.5 million (Series 2021A-1 bonds would be tax-exempt, and Series 2021A-2 bonds would be taxable). The Series 2021A bonds would be secured by a first lien on all of Buckingham’s assets and be senior in repayment and security to the Series 2021B bonds. The Series 2021A bonds would be privately placed with certain members of the steering committee, and their proceeds would be used to fund (a) payment of charter refund obligations (contract rejection damages claims of former charter residents that were entitled to refunds within 180 days of departing the community, to the extent the claims relate to residence agreements) up to approximately $2.4 million, (b) lobby refurbishment and capital expenditures of approximately $3.5 million, (c) working capital of approximately $13.7 million, (d) a debt service reserve fund in the amount of $8.4 million and (e) costs of issuance.

To the extent that there are amounts held under the bond indentures and master indenture after fully funding the debt service reserve fund requirement (of approximately $11.6 million), then the excess amount would be used to reduce the par amount of the Series 2021A bonds, dollar for dollar. The Series 2021A bonds would also be subject to mandatory redemption from “Excess Cash” after repayment of the obligations and liabilities due and owing under certain life care residence agreements of former life care residents, referred to as the unsecured “Pre-Petition Refund Queue.” The Series 2021A-2 bonds would be redeemed prior to the Series 2021A-1 bonds.

Series 2021B Bonds/Exchange

On the effective date, existing Series 2007, Series 2014 and Series 2015 bonds along with the DIP financing would become Series 2021B bonds in a principal amount equal to 100% of the principal amount of the existing bonds. Accrued and unpaid interest on the existing bonds would be canceled on the exchange date. The Series 2021B bonds would accrue interest at the minimum long-term applicable federal rate in effect on the effective date until the earlier of (a) five years from the effective date and (b) the prepetition refund queue being paid in full, at which point the accrued principal amount will pay current interest at 5% until year 10 and 5.625% thereafter. The Series 2021B bonds would be interest-only until year 17 and would amortize from years 17 to 40.

The Series 2021B Bonds would be subject to optional redemption prior to maturity commencing on the fifth year after the effective date at a redemption price of 105% in year five, 104% in year six, 103% in year seven, 102% in year eight, 101% in year nine and 100% in year 10 at a price equal to par. The Series 2021B bonds would also be subject to mandatory redemption from excess cash after the Series 2021A bonds are paid in full. Any mandatory redemption of the Series 2021B bonds from excess cash or optional redemption would be credited to reduce mandatory sinking fund redemptions pro rata in future years.

Distribution Waterfall

On the effective date, the balances of the operating account and any revenue available to Buckingham at such time would be applied in the following order of priority:

• To pay all professional fees and expenses incurred in connection with the restructuring transaction subject to an agreed-upon budget;


• To fund an unrestricted reserve amount equal to approximately 45 days cash on hand;


• To fund an operating reserve fund up to 105 days cash on hand; and


• To fund the 2021B subaccount of the new debt service reserve fund up to the debt service reserve fund requirement of approximately $11.6 million.

Thereafter, all post-effective-date revenue of Buckingham (other than entrance fees) would be deposited in the revenue fund, provided that revenue with respect to any government payor would be deposited into an account in the name of Buckingham, and such revenue would be swept into the revenue fund weekly. Monthly, funds in the revenue fund would be distributed in the following order of priority:

• First, to transfer to the operating account the amount certified by Buckingham (in a certificate setting forth in reasonable detail the projected application of the amount so certified) as necessary to pay anticipated operating expenses for the upcoming month (taking into account any unapplied amount withdrawn for such purpose in a prior month);


• Second, to the Series 2021A bonds subaccount of the bond fund, in an amount equal to 1/6th of the interest due on the next interest payment date;


• Third, to the Series 2021A bonds subaccount of the bond fund, in an amount equal to 1/12th of the principal due on the next principal payment date;


• Fourth, if and to the extent payable within the next succeeding six-month period, to the Series 2021B bonds subaccount of the bond fund, in an amount equal to 1/6th of the interest due on the next interest payment date;


• Fifth, to the Series 2021B bonds subaccount of the bond fund, if and to the extent principal is due within the next 12-month period, in an amount equal to 1/12th of the principal due on the next principal payment date;


• Sixth, to replenish any deficiency in the new debt service reserve fund necessary to make the amount therein equal the debt service reserve fund requirement; and


• Seventh, any remaining amounts after application of paragraphs first to sixth above (referred to as “Excess Cash”) would be transferred as follows:
  
  
  
  • Until the amount on deposit in the operating account and the operating reserve fund (the operating cash) equals 150 days cash on hand (tested as of the end of each fiscal quarter), to the operating reserve fund;
  
  
  • Then, from the time the operating cash equals 150 days cash on hand until the prepetition refund queue is paid in full, 100% of the excess cash in excess of 150 days cash on hand to pay the prepetition refund queue (payments would be made on the prepetition refund queue semiannually upon determination of the days cash on hand on each June 30 and Dec. 31);
  
  
  • Once the prepetition refund queue is paid in full, 100% of the excess cash in excess of 150 days cash on hand to redeem the Series 2021A-2 bonds and then the Series 2021A-1 bonds (redemptions shall occur semiannually upon determination of the days cash on hand on each June 30 and Dec. 31); and
  
  
  • Once the Series 2021A bonds are paid in full, excess cash in excess of 150 days cash on hand to redeem the Series 2021B bonds (redemptions would occur semiannually upon determination of the days cash on hand on each June 30 and Dec. 31).
  
  
  
  

The bonds have several operating and financial covenants in addition to the days’ cash on hand, including a debt service coverage ratio, which would be tested starting Dec. 31, 2024, and would require Buckingham to have not less than 1.1x on each testing date, as well as occupancy covenants for the independent living and healthcare units. Failure to meet the operational covenants requires the facility to retain certain professionals. If the operational covenants are not complied with for two consecutive testing dates, it would constitute an event of default.

Feasibility Projections

The debtor provides the following feasibility projections:



Liquidation Analysis

The disclosure statement includes the following liquidation analysis:


Other Motions

The debtor also filed various standard first day motions, including the following:

• Motion to escrow postpetition entrance fees and refund certain entrance fees
  
  
  
  • The debtor seeks authorization to enter into an escrow agreement with escrow agents UMB Bank and Regions Bank, whereby any entrance fees paid to the debtor by residents entering into the community would be held in an escrow account for the benefit of such residents. The funds will remain until the earlier of an occurrence of a refund event or court order.
  
  
  
  


• Motion to maintain, administer and modify medical payment refund programs and practices
  
  
  
  • The company is seeking authority to maintain, administer, continue and modify its medical payment refund program and make payments to residents and third-party payors or to otherwise honor accrued obligations owed under its medical payment refund program. In the ordinary course, the debtor receives overpayments from the residents and patients of its facilities as well as third-party payors due to billing procedures, resident overpayments and cancellations, medical insurance reconciliations, or third-party payments.
  
  
  
  


• Motion to pay employee wages and benefits
  
  
  
  • The company seeks authority to: (i) pay compensation obligations, including payroll (as of the petition date, the debtor estimates no amounts are outstanding); (ii) honor, continue and pay payroll taxes and other withholding obligations, including 401(k) contributions (as of the petition date, approximately $65,000 has been withheld); (iii) satisfy reimbursement obligations; (iv) continue with the accrued paid-time-off program consistent with the debtors’ historical practices (as of the petition date, the total accrued PTO is $415,868.27); and (v) pay credit and debit card obligations (seeking authority to pay $30,000 in outstanding obligations).
  
  
  
  


• Motion to use cash management system
  
  
  
  • The company has 23 bank accounts with Bank of America, Regions and UMB Bank.
  
  
  
  


• Motion to maintain insurance programs
  
  
  
  • The company seeks authority to continue various insurance policies, including property, auto, business interruption, cyber liability, flood, directors and officers liability, excess property, excess liability and excess directors and officers liability.
  
  
  
  


• Motion to pay taxes and fees


• Motion to provide utilities with adequate assurance


• Motion to implement certain notice procedures and implement procedures to maintain and protect resident information


• Application to appoint Stretto as claims agent