Tue 11/02/2021 15:53 PM
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Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
First Day Hearing Notice


















Summary
Debtor operates a 160-bed nursing and rehabilitation facility in White Plains, N.Y., known as Epic Rehabilitation and Nursing at White Plains
Filed to thwart the termination of its lease and resolve disputes with its landlord
Requests $4 million in DIP financing and seeks to obtain exit financing that would allow the debtor to exercise its option under the lease to purchase the real property


​​HBL SNF LLC, which operates a 160-bed nursing and rehabilitation facility in White Plains, N.Y., known as Epic Rehabilitation and Nursing at White Plains, filed for chapter 11 protection on Monday, Nov. 1, in the Bankruptcy Court for the Southern District of New York. Notwithstanding that the debtor is “generally financially and operationally sound,” it filed because of $84 million in damages sought by its landlord, White Plains Healthcare Properties I LLC, or WPHCP, in pending litigation to terminate the lease that threatens the debtor’s ability to operate. WPHCP, which obtained financing to support the development of the debtor’s healthcare facility, claims that the debtor has defaulted under the development and lease agreement. The debtor asserts that any security interests of WPHCP are unperfected and avoidable and that it is not party to the WPHPC loan agreement. The debtor says it intends to obtain third-party exit financing to exercise an option under the lease to purchase the property for $65.1 million. The property was appraised at $56.8 million to $74.9 million as of April 2020.

The case would be funded with $4 million in DIP financing from third-party CNH Finance Fund I, L.P.

The debtor filed to prevent the “threatened abrupt termination” of its lease and seeks to (i) resolve its disputes and fix its liability, if any, in connection with the development and lease transactions, including by seeking to remove its pending litigation to the Bankruptcy Court; (ii) obtain third-party DIP financing to pay its general obligations as they come due; (iii) obtain third-party exit financing that would allow the debtor to exercise its option under the lease to purchase the real property within the first 15 years of the lease term for a purchase price of $65.1 million and (iv) formulate a plan of reorganization that would provide for payment of all creditors in full and emergence from bankruptcy.

The first day hearing has been scheduled for Wednesday, Nov. 3, at 4 p.m. ET.

The debtor reports $8.7 million in assets and $18.2 million in liabilities, according to the debtor’s schedules. The company’s prepetition capital structure includes:

  • Secured debt: None, except for approximately $195,553 owed to equipment finance suppliers.

  • Unsecured debt: $18.2 million ($5.1 million as of Sept. 30 excluding insiders/affiliate debt)

  • Equity: HHHW Liquidation Trust owns 39% of the membership interest in the debtor, according to a notice of appearance filed by the liquidation trustee Alan D. Halperin of Halperin Battaglia Benzija.


According to the debtor, WPHCP defaulted under a $38.5 million loan WPHCP obtained from Security Benefit Life Insurance Company to finance the development of the debtor’s facility. The loan has at least $42 million owed as of six months ago, as alleged by Security Benefit in its state court foreclosure action against WPHCP, which was stopped by a New York state moratorium. The landlord, however, alleges that the debtor is in default under the development and lease agreement with WPHCP and sent the debtor a notice purporting to terminate the lease effective January 2020 and seeking to accelerate obligations allegedly due in the amount of $84.1 million. The debtor says it disputes these alleged defaults and the lease termination and contends it remains “in substantial compliance with the Lease and has made all outstanding rental payments to WPHCP.”

In September 2020, WPHCP sued the debtor and the debtor’s CEO and CFO in New York state court, making what the debtor says are “various frivolous allegations regarding purported defaults by the Debtor under the Lease, seeking termination of the Lease and seeking recovery of over $84 million in alleged damages.” The debtor and co-defendants, in response, sought a declaratory judgment as well as an accounting and money damages based upon fraud, fraud in the inducement, breach of contract and bad faith. WPHCP’s summary judgment motion is pending, with WPHCP yet to file a reply brief to the debtor’s opposition.

The case was filed under Subchapter V of the Bankruptcy Code.

The debtor is represented by Klestadt Winters Jureller Southard & Stevens in New York. Omni is the claims agent. The case has been assigned to Judge Sean H. Lane (case number 21-22623).

Background

HBL operates a 160-bedroom skilled nursing and rehabilitation facility located in White Plains, N.Y. The facility opened in late 2019 and, as of the petition date, is approximately 75% occupied. The debtor has more than 250 employees, including registered nurses, therapists and other healthcare professionals, and offers both short-term and long-term care to its patients and residents.

The debtor provides an array of healthcare services, including neurological, respiratory, orthopedic, occupational, psychiatric and many other medical and rehabilitative services. The annual gross revenue of the debtor for fiscal year 2020 was over $10 million.

The debtor's largest unsecured creditors are listed below:


 










































































10 Largest Unsecured Creditors
Creditor Location Claim Type Amount
Skyview Nursing Home NA Intercompany
Loan
$    10,825,337
Waterview Acquisition I LLC NA Intercompany
Loan
2,518,777
NA NA NA 1,100,000
Park Manor Acquisition II LLC NA Intercompany
Loan
865,543
"Due to Owners" NA NA 770,000
Michelman & Robinson LLP Los Angeles NA 436,304
Pharmscript LLC Somerset, N.J. NA 234,741
Epic Senior LLC NA Intercompany
Loan
174,963
Putnam Operation Acquisition NA Intercompany
Loan
165,830
Central Care Solutions Linden, N.J. NA 96,816

The case representatives are as follows:



 






























































Representatives
Role Name Firm Location
Debtor's Counsel Tracy L. Klestadt Klestadt Winters
Jureller Southard
& Stevens
New York
Brendan M. Scott
Stephanie R. Sweeney
Debtor's Financial
Advisor
NA HMM CPAs NA
DIP Lender's Counsel Alissa M. Nann Foley & Lardner New York
Counsel to Bethel
Nursing Home Company,
Owner of 10%
Membership Interest in
HBL SNF
Kristina M. Wesch Wiggin and
Dana
New York
Michael L. Kenny, Jr.
Counsel to Liquidation
Trustee of HHHW
Liquidation Trust
Alan D. Halperin Halperin
Battaglia Benzija
New York
Debra J. Cohen
Debtor's Claims Agent Paul H. Deutch Omni Agent
Solutions
New York



DIP Financing Motion

The debtor seeks approval of $4 million in DIP financing ($750,000 on an interim basis) from CNH Finance Fund I, L.P.

The debtor also seeks the use of cash collateral “as a result of the potential arguments by WPHPC and WPHPC’s lender, Security Benefit, that they hold a lien on substantially all of the Debtor’s assets.” According to the motion, the debtor granted security interests to WPHPC and Security Benefit, but maintains that WPHPC’s security interest is unperfected and avoidable and the debtor is not a party to WPHPC’s loan agreement with, and has no obligations to, Security Benefit. “Although the Debtor’s assets are technically encumbered by Security Benefit’s security interest under the Security Agreement, WPHCP holds no enforceable liens, and the Debtor does not have any secured debt owing to Security Benefit, as the Debtor is not a party to the Loan Agreement or guarantor of WPHCP’s obligations thereunder,” the debtor says. The debtor also says that neither WPHPC nor Security Benefit has control of the debtor’s bank accounts under a deposit control agreement.

Further, the debtor asserts that WPHPC and Security Benefit are “more than adequately protected” by an equity cushion based on the appraised value of the real property of $56.8 million to $74.9 million as of April 2020.

The DIP financing bears interest at the prime rate quoted by Wells Fargo Bank plus 2%, with 3% added for the default rate, and matures on the earliest of the effective date of a plan of reorganization, sale consummation, conversion to chapter 7, dismissal or two years after closing.

The DIP financing would be secured by priming liens and would also have superpriority administrative expense status.

The facility includes various fees, including a 1% facility fee, 0.15% collateral management fee, 0.042% unused line fee and 1% deferred origination fee.

In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c).

The carveout consists of all invoiced and payable attorneys’ fees and patient ombudsman fees.

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

Other Motions

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



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