CASE SUMMARY: Kingswood Senior Living Community Files Prenegotiated Case to Restructure Municipal Bonds With Support of ‘Preponderant’ Majority of Bondholders

Relevant Documents:
Voluntary Petition
List of 20 Largest Unsecured Creditors
First Day Declaration
Plan of Reorganization
Disclosure Statement
Motion to Approve Plan Support Agreement
Cash Collateral Motion

To view the relevant documents above as well as our First Day team's coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities including the Kingswood Senior Living Community restructuring situation request a trial here: https://reorg.com/trial

 

Summary
Debtor owns and operates the Kingswood Senior Living Community continuing care retirement community
Plan support agreement contemplates restructuring of existing Series 2016 bonds, to be exchanged for Series 2021B bonds and Series 2021D bonds, along with issuance of Series 2021A and Series 2021 new-money bonds for working capital and capital improvements
Blames filing on slowed new occupancies exacerbated by Covid-19 pandemic

Kansas City United Methodist Retirement Home Inc., dba Kingswood Senior Living Community, a Kansas City, Mo.-based owner and operator of a continuing care retirement community, or CCRC, filed for chapter 11 protection yesterday, Aug. 18, in the Bankruptcy Court for the Western District of Missouri. The debtor filed to restructure its debt related to Series 2016 revenue bonds issued by the Kansas City Industrial Development Authority pursuant to a plan support agreement entered into with the “preponderant majority” of bondholders. Pursuant to the plan, the existing Series 2016 bonds would be exchanged for Series 2021B bonds in the principal amount of $27 million and Series 2021D bonds in the principal amount of $12.1 million. The debtor would also issue Series 2021A new-money bonds for working capital in the principal amount of $5.5 million and Series 2021C new-money bonds for capital improvements in the principal amount of $4.4 million.

According to the first day declaration of Ross Marine, chairman of the debtor’s board, the debtor also seeks to assume all residency agreements and pay all prepetition and administrative claims in full. Further, the debtor requests the use of cash collateral of bond trustee UMB Bank. The proposed plan of reorganization contemplating the bond restructuring “will provide additional capital for Debtor’s operations and thereby stabilize Debtor’s liquidity position” and “promote the long-term financial stability of Debtor.”

The first day hearing is yet to be scheduled.

The company reports $49.9 million in assets and $91.1 million in liabilities (net of accumulated amortization of nonrefundable entrance fees, deferred financing costs and original issue premium) as of June 30. The company’s prepetition capital structure includes:

• Secured debt: Series 2016 revenue bonds issued by the Kansas City Industrial Development Authority: $51.1 million in principal and $5.3 million in interest (according to cash collateral motion).


• Unsecured debt:
  
  
  
  • Trade debt: $1.3 million,
  
  
  • Current resident refund obligations: $3.9 million, and
  
  
  • Future entrance fee liabilities: $30.9 million.
  
  
  
  


• Equity: The debtor is a nonprofit.

According to an offering statement for the Series 2016 bonds posted to EMMA, the municipal bond market disclosure site, the 2016 bond issuances, issued in the principal amount of $51.8 million, have the following CUSIPs, maturities and interest rates:

The debtor’s report for the quarter ended June 30, also posted to EMMA, is HERE.

The debtor had approximately $49.9 million in assets as of June 30 on a book value basis, consisting of approximately $1.9 million in cash, $417,403 in accounts receivable, $374,216 of deferred entrance fee receivables, $40.7 million in fixed assets, $4.8 million of restricted cash and $1.7 million of other assets.

The debtor “has experienced increasing financial distress from slowed new occupancies and resulting cash flow shortfalls” which was “greatly exacerbated by the impact of the COVID-19 pandemic,” leading to default under the Series 2016 bonds, the DS says. The debtor entered into a forbearance agreement with the bond trustee and ultimately the plan support agreement, paving the way for the chapter 11 filing.

The debtor is represented by McDowell Rice Smith & Buchanan in Kansas City. The case has been assigned to Judge Cynthia A. Norton (case No. 21-41049).

Background

Kansas City United Methodist Retirement Home, organized in 1972, is a Missouri nonprofit corporation that owns and operates a fully licensed continuing care retirement community in Kansas City, Mo., known as the Kingswood Senior Living Community. Kingswood spans roughly 30 acres and offers residents a full continuum of services. In total, the community serves about 275 residents. The debtor has 185 employees.

The Kingswood community includes three distinct components to facilitate aging: (i) independent living, with 65 villa homes and 145 apartments, including studio, one-bedroom and two-bedroom independent living apartments; (ii) assisted living/memory care units, with 57 beds in operation; and (iii) skilled nursing, with 65 beds in operation. The assisted living/memory care units include 26 one-bedroom assisted living units, four two-bedroom assisted living units, and 23 memory care studio units.

On Dec. 1, 2020, the debtor entered into a management and marketing services agreement with GMSC Missouri LLC, a Texas limited liability company and a wholly owned subsidiary of GMSC LLC, under which GMSC is to provide management services for the debtor through Nov. 30, 2025.

Occupancy by residents requires the execution of a residency agreement, which provides the terms and conditions by which each independent living unit resident must abide while residing at Kingswood and outlines the resident’s obligations regarding the payment of entrance fees, the resident’s rights to an entrance fee refund, and other monthly charges that may be due to the debtor during the duration of the resident’s stay.

The residency agreements also describe the additional fees and terms regarding a transfer to assisted living, memory care or skilled nursing. The residency agreements (other than independent living rental agreements, which are available on smaller independent living apartments) require the resident to provide the debtor with: (i) an entrance fee, (ii) monthly service fees (including an additional fee for an independent living unit occupied by more than one person), and (iii) fees for any optional services requested by the resident. The debtor currently offers prospective independent living residents the choice of two entrance fee residency plans, which primarily differ with regard to the required fees and the amounts that can be refunded thereunder. The terms of each form of residency agreement (and admission agreement) are summarized as follows:

The entrance fees range from $34,448 to $395,000, depending on the particular residency agreement and independent living apartment or villa selected. The monthly service fees range from $1,874 to $5,353 per month, depending on the residency agreement and unit selected.

The debtor's largest unsecured creditors are listed below:

10 Largest Unsecured Creditors
Creditor	Location	Claim Type	Amount
Resident	N/S	Entrance Fee Refund	$   301,500
Life Care Services LLC	Des Moines, Iowa	N/S	292,102
Resident	N/S	Entrance Fee Refund	288,000
Resident	N/S	Entrance Fee Refund	253,425
Resident	N/S	Entrance Fee Refund	248,400
Resident	N/S	Entrance Fee Refund	189,450
Resident	N/S	Entrance Fee Refund	184,703
Resident	N/S	Entrance Fee Refund	182,313
Resident	N/S	Entrance Fee Refund	166,562
Resident	N/S	Entrance Fee Refund	155,250

The case representatives are as follows:

Representatives
Role	Name	Firm	Location
Debtor's Counsel	Jonathan A. Margolies	McDowell Rice Smith & Buchanan	Kansas City, Mo.
Co-Counsel to UMB Bank	Zachary R.G. Fairlie	Spencer Fane	Kansas City, Mo.
	Scott J. Goldstein
Co-Counsel to UMB Bank	Daniel S. Bleck	Mintz Levin Cohn Ferris Glovsky and Popeo	Boston
U.S. Trustee	Sherri L. Wattenbarger	Office of the U.S. Trustee	Kansas City, Mo.

Plan of Reorganization / 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 debtor’s plan sets forth the following classification of and proposed distributions to holders of allowed claims and interests:

• Class 1 - Other priority claims: Payment in full in cash or such other agreed treatment.


• Class 2 - Other secured claims: At the sole option of the reorganized debtor, either payment in full in cash, collateral securing the claim, reinstatement or such other treatment that renders the claim unimpaired.


• Class 3 - Bond claims: Ratable share of the Series 2021B and Series 2021D bonds; allowed in the aggregate amount of $56.4 million (deficiency claim waived on the effective date, and unpaid fees and expenses incurred through the petition date would be added to the aggregate amount of the bond claims).


• Class 4 - General unsecured claims: Paid in full. Claims attributable or held by the debtor’s Wesley Fund and the Kingswood Senior Living Community Foundation (two sources of donor funding of the debtor) would be waived, released and discharged by agreement of the parties.


• Class 5 - Resident refund claims (consisting of all refunds of entrance fees due as of the effective date or due thereafter pursuant to residency agreements): Payment in full in accordance with the existing residency agreement.

Series 2021A Bonds

The Series 2021A bonds would be issued in the principal amount of $5.5 million, bear interest at 10% and mature 16 years from issuance. Payments on the bonds would be interest-only for the first three years (through fiscal year 2024) payable semi-annually, and principal would start amortizing beginning FY 2025 over a 13-year period and structured to level debt service. The Series 2021A bonds would be secured by a first lien on all of the assets of the reorganized debtor, pari passu with the Series 2021C bonds.

Series 2021B Bonds

The Series 2021B Bonds would be issued in the principal amount of $27 million, bearing interest at 5% and maturing 25 years from issuance. Payments on the bonds would be interest-only for the first 13 years (through FY 2034) and payable semi-annually, and principal payments would commence in FY 2035. The Series 2021B bonds would be secured by a lien on all of the reorganized debtor’s assets, junior only to the liens securing the Series 2021A bonds and Series 2021C bonds, but senior to the Series 2021D bonds.

Series 2021C Bonds

The Series 2021C bonds would be issued in the amount of $4.4 million, bear interest at 7.5% and mature 25 years from issuance. Payments on the bonds would be interest-only for the first 13 years (through FY 2034) payable semi-annually, and principal payments would commence in FY 2035. The Series 2021C bonds would be secured by first lien on all of the reorganized debtor’s assets, pari passu with the Series 2021A bonds.

Series 2021D Bonds

The Series 2021D bonds would be issued in the principal amount of $12.1 million, bear interest at 2% and mature 25 years from issuance. Payments on the Series 2021D bonds would be subordinate to the payment of the Series 2021A bonds, Series 2021B bonds and Series 2021C bonds, and the Series 2021D bonds would be payable from “Excess Cash pursuant to the Distribution Waterfall, with available Excess Cash applied first to accrued interest then to principal.” The Series 2021D bonds would be secured by a lien on all of the reorganized debtor’s assets, junior to the liens securing the Series 2021A bonds, Series 2021B bonds and Series 2021C bonds.

Bond Distribution Waterfall

The reorganized debtor would deposit into a revenue fund, in which all revenue and other income of the debtor would be deposited (funds received from new entrance fees would be first used to pay any obligated entrance fee refund with the balance deposited into the revenue fund), and distributed pursuant to the following waterfall:

• First, to the reorganized debtor to deposit into an operating fund amounts necessary to pay in the upcoming month (a) budgeted operating expenses, (b) refunding of entrance fees and (c) payments on “Non-Recourse Indebtedness.” The amount to be deposited from the revenue fund to the operating fund would take into account any unapplied amount deposited in the operating fund from the revenue fund for such purpose in a prior month or any amount of the “Remaining Series 2021A Funds” remaining on deposit in the operating fund, but exclude from the calculation of the amount to be deposited in the operating fund from the revenue fund the amount of any “Excess Cash” released to the reorganized debtor.


• Second, to the Series 2021A interest account and the Series 2021C interest account of the bond fund, one-sixth of the interest due on the next interest payment date of the respective bonds.


• Third, to the Series 2021B interest account of the bond fund, one-sixth of the interest due on the next interest payment date for the Series 2021B bonds.


• Fourth, beginning December 2024 and monthly thereafter until the Series 2021 bonds are satisfied in full, to the series 2021 principal account of the bond fund, one-twelfth of the principal due on the next principal payment date.


• Fifth, beginning December 2034 and monthly thereafter until the Series 2021C bonds are paid in full, to the Series 2021C principal account of the bond fund, one-twelfth of the principal due on the next principal payment date.


• Sixth, beginning December 2034 and monthly thereafter until the Series 2021B bonds are satisfied in full, to the Series 2021B principal account of the bond fund, one-twelfth of the principal due on the next principal payment date.


• Seventh, after no Series 2021C bonds are outstanding under the 2021 indenture, to the Series 2021B “Account of Debt Service Reserve Fund” the amount needed to equal the debt service reserve requirement for the Series 2021B bonds.


• Eighth, any remaining amounts (referred to as the “Excess Cash”) after (a) application of the first through seventh waterfall steps above; and (b) in excess of an amount equal to 100 days’ cash on hand, which would continue to be held in the revenue fund, would be transferred (i) 70% of the excess cash to the Series 2021D “Account of the Bond Fund” to pay interest due on the next interest payment date and then to pay principal of the Series 2021D bonds, and (ii) 30% of the excess cash to the reorganized debtor to be spent solely on expenses related to the facilities.

The company would establish a bond fund with the trustee, subject to the trustee’s lien under the Series 2021 bond documents, which bond fund would receive “(i) the monthly payments of principal and interest due and payable under the Series 2021A Bonds, Series 2021B Bonds, and Series 2021C Bonds, and (ii) Excess Cash (as defined herein and to the extent provided for in the Distribution Waterfall) with such amounts then being distributed to holders of Series 2021D Bonds.” The bond documents also provide for certain debt service reserve funds, subject to the trustee’s lien under the Series 2021A bonds, Series 2021B bonds and Series 2021C bonds.

The Series 2021A debt service reserve fund would be funded with $500,000 from the proceeds of the Series 2021A bonds, and the Series 2021C debt service reserve fund would be funded with $400,000 from the proceeds of the Series 2021C bonds. Certain proceeds of the Series 2016 bonds would provide an initial deposit to the Series 2021B debt service reserve fund with the balance of the Series 2021B debt service reserve requirement (to be equal to the lesser of 10% of the proceeds of the Series 2021B bonds, 125% of average annual debt service on the Series 2021B bonds and maximum annual debt service on the Series 2021B bonds) funded from the distribution waterfall. The Series 2021 bonds would also be secured by the “2021 Deed of Trust” providing a lien on real property and other assets of the reorganized debtor.

The documents also contemplate a repair and replacement fund, subject to the trustee’s lien under the Series 2021 bonds, to be funded from proceeds of the Series 2021C bonds (less amounts necessary to fund the “Series 2021C DSRF”). Funds from the repair and replacement fund would only be allowed to be withdrawn to pay the costs associated with the items designated on a schedule to be agreed upon by the debtor and an informal steering committee consisting of a majority of Series 2016 bondholders.

The Series 2021A bonds would be taxable for federal income tax purposes, but the Series 2021B bonds, Series 2021C bonds and Series 2021D bonds would be tax-exempt.

Sponsor Loan

On the effective date, the debtor’s obligations would be waived with respect to (a) the debtor’s Wesley Fund, which has an outstanding principal amount due of $1 million plus accrued interest, and (2) the Kingswood Foundation, which has an outstanding principal amount due of $80,000 plus accrued interest.

Plan Milestones

The restructuring milestones contemplated under the DS are as follows:

• Aug. 25: Entry of interim cash collateral order;


• Sept. 29: Entry of final cash collateral order, DS and solicitation procedures order;


• Nov. 8: Plan confirmation; and


• Nov. 15: Plan effective date.

Financial Projections

The DS includes the following financial projections through 2025:


Liquidation Analysis

The debtor provides the following liquidation analysis:


Other Plan Provisions

The plan provides for releases of the debtor; the reorganized debtor; the 2016 bond trustee; the consenting bondholders; the Kansas City Industrial Development Authority as the 2016 bond issuer and 2021 bond issuer; and the 2021 bond trustee. In addition, the plan includes an exculpation provision in favor of the debtor, the reorganized debtor, the bond trustee and the consenting 2016 bondholders.

Under the plan, the new board would initially consist of the directors and officers as of the petition date unless otherwise disclosed in the plan supplement or prior to the confirmation hearing.

Cash Collateral Motion

The debtor requests the use of cash collateral of bond trustee UMB Bank, proposing as adequate protection a replacement lien (excluding avoidance actions for purposes of the interim order, but the bond trustee reserves the right to request that that the replacement lien include avoidance actions pursuant to the final order), a superpriority administrative expense claim, financial reporting and compliance with the bond documents.

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

The carve-out for professional fees is $50,000.

The proposed budget for the use of cash collateral is HERE.

The lien challenge deadline is 60 days from entry of the interim order.

Other Motions

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

• Motion to pay critical vendors
  
  
  
  • The debtor seeks approval to pay approximately $118,315 in critical vendor claims to Sysco Food Services of Kansas City, Squires Construction, Home Depot Pro, Liberty Fruit Co., McKesson Medical Surgical, Edward Don and Hiland Dairy Co.
  
  
  
  


• Motion to pay employee wages and benefits
  
  
  
  • The debtor requests authority to pay approximately $77,968 in unpaid prepetition payroll obligations.
  
  
  
  


• Motion to use cash management system
  
  
  
  • The company has bank accounts with Country Club Bank and Bank of America.
  
  
  
  


• Motion to escrow postpetition entrance fees and refund certain entrance fees
  
  
  
  • The debtor seeks to escrow all new entrance fees (defined as all entrance fees received after July 28) in an escrow account at Country Club Bank. The new entrance fees and the proceeds thereof would be subject to the trustee’s continuing first-priority perfected lien as set forth in the applicable residency agreements and the escrow agreement; provided, however, the trustee’s lien would be limited to the extent of the debtor’s right, title and interest to such funds.
  
  
  
  


• Motion to implement patient confidentiality procedures


• Motion to provide utilities with adequate assurance