Henry Ford Village, Inc.
CASE SUMMARY: With Significant Entrance Fee Refund Obligations and Assisted Living Occupancy Rates Down by ‘Nearly Half,’ Henry Ford Village Hopes to Find Strategic or Financial Acquirer or Sponsor
Thu 10/29/2020 13:16 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
First Day Hearing Agenda
Henry Ford Village, Inc., a Dearborn, Mich.-based continuing care retirement community offering 841 independent living units, 96 assisted living units and 89 skilled nursing beds, filed for chapter 11 protection on Wednesday, Oct. 28, in the Bankruptcy Court for the Eastern District of Michigan. Facing significant entrance fee refund obligations and October occupancy levels at 66%, the debtor says it “will seek to run a marketing process while in Chapter 11 to find a strategic or financial acquirer or sponsor to put the Debtor on a solid financial footing to provide for the residents and patients that rely upon the Debtor now and into the future.” The Debtor believes it has sufficient cash collateral to continue operations during a potential sale process over the next thirteen weeks, but will likely require additional liquidity to complete the case. Continue reading for the First Day by Reorg team's case summary for the Henry Ford Village chapter 11 filing, and request a trial to access our coverage of thousands of other chapter 11 filings.
The debtor is not contemplating the need for DIP financing “at this time,” and instead requests the use of cash collateral that it says will be sufficient for a potential sale process over the next 13 weeks. A proposed interim cash collateral order has been negotiated with the bond trustee.
The debtors’ largest unsecured creditor apart from entrance fee refunds (including legacy and litigation-related refunds) is Life Care Services, the debtor’s management company. The debtor says it does not intend to pay Life Care Services management fee debt but will pay postpetition ordinary course salaries for two Life Care Services employees.
The first day hearing has been scheduled for tomorrow, Oct. 30, at 10 a.m. ET.
The company reports $100 million to $500 million in both assets and liabilities. The company’s prepetition capital structure includes:
The debtor failed to make a principal payment of $775,000 due under the bonds on May 15, and received a notice of default on Oct. 2. On Oct. 22, the bond trustee sent a notice that the bonds were due in full.
The bond trustee controlled various reserve accounts, as follows (with corresponding available funds immediately before the petition date): a revenue fund ($2,000), debt service fund ($6.00), debt service reserve fund ($4.3 million) and construction project fund ($83.00). On Oct. 22, when the bond trustee elected to accelerate obligations under the bond documents, it also set off against the debtor’s obligations all of the funds in the reserve accounts, which as a result currently have no funds.
To help offset the financial impact of the pandemic and provide additional liquidity, on April 10, HFV applied for PPP funding through its bank, Comerica Bank, and obtained a loan for approximately $2.7 million. The debtor also received $840,650 pursuant to the Centers for Medicare & Medicaid Services Expanded Accelerated and Advance Payments Program, which CMS “may attempt” to recoup in April 2021.
The company attributes the bankruptcy filing to significant, growing entrance fee refund obligations and the Covid-19 pandemic, which “made an already difficult situation unsustainable.” At the time HFV acquired the facility, it also inherited significant entrance fee refund liability “overhead,” with insufficient operating reserves set aside to cover entrance fee turnover and occupancy fluctuations as part of the ownership transfer. Further, HFV says it has had to contend with significant increased competition in the extended care marketplace and points to past events such as the housing crisis, the Great Recession and the bankruptcies of GM and Chrysler, all of which decreased the number of people in Michigan who could sell their homes and move into Henry Ford Village.
Citing official state records, the debtor reports that there were 5,155 deaths of Michigan residents ages 64 and up due to the pandemic, with another 2,429 deaths in that age group attributed to a combination of Covid-19 and pneumonia. Many seniors are generally staying at home and social distancing, and there remains a reluctance from certain of the applicable population to entertain moving from homes into the debtor’s type of residential facility at this time, the debtor says, adding that even for those who are still considering a move to a residential facility during the pandemic, HFV has been subject to strict limitations on visitors which prevented HFV from showing vacant units and tours to prospective residents.
HFV says it “aggressively” sought relief from its long-term debt obligations through a debt refinancing that was scheduled to close earlier in 2020, “when the financial markets were more favorable,” but this refinancing – “like so many other things” – was upended by the Covid-19 pandemic and not completed. Hence, in addition to its endemic challenges, Covid-19 became an additional and significant contributing factor compromising HFV’s financial viability.
The debtor also points to being a defendant in a 2014 class action lawsuit filed in Michigan state court regarding entrance fee liabilities that resulted in a settlement pursuant to which HFV was to pay $800,000 by Oct. 12, and for HFV to “in the future, add interest to the refund amount due after a certain amount of time had passed without a refund being made.” HFV sought relief from the court from making the settlement payment due to “its financial position” and the bond trustee’s opposition to the settlement payment. The court denied HFV’s motion and ordered HFV make the settlement payment within seven days, which led to the timing of the filing of the bankruptcy case.
The debtor is represented by Dykema Gossett in Bloomfield Hills, Mich., as counsel and FTI Consulting as financial advisor, with FTI’s Chad Shandler serving as the debtor’s CRO. KCC is the claims agent. The case has been assigned to Judge Mark A. Randon (case no. 20-51066).
Background
Henry Ford Village, Inc. was incorporated in 1992 as a Michigan nonprofit charity corporation for the purpose of providing housing, healthcare and other related services to the elderly. The debtor’s facility is located on the birth site of Henry Ford, on 35 acres of land, where it maintains 841 Independent living units, 96 assisted living units and 89 skilled nursing units, allowing residents to age in place by providing them the increased levels of healthcare and other services that are needed as residents age or health otherwise changes (short of hospital care). Both the independent living and assisted living levels of care consist of 100% private pay. The facility is operated by a staff of approximately 522 employees.
Due to circumstances created by Covid-19 and the population of the facility, noncritical visitation to the facility remains limited.
The facility’s census as of Oct. 22, 2020, is shown below:
All buildings within the facility are interconnected, allowing residents to walk from one neighborhood to another without regard to the weather. The facility includes two community buildings, dining rooms, a convenience store, bank, beauty salon/barber shops, game rooms, a music room, an aquatic center, classrooms, a library, a woodwork and hobby shop, a computer lab, an in-house cable television station, a non-denominational chapel, walking paths and a health club.
The facility was developed by Erickson Retirement Communities. The debtor says that the “Erickson Model,” despite being “a beautiful large senior living complex,” posed “significant challenges from a financial perspective and despite the efforts of different management companies for the Facility, HFV has not been able to successfully reorient the campus offering to better meet the challenges in itns market area for entrance fee-based senior living options.” Erickson was the manager of the facility until December 2009, when it landed in its own bankruptcy proceeding and was acquired by Redwood Capital Investments, which took over the facility’s management for a year before the debtor engaged Life Care Services to operate and manage the facility. Due to its financial difficulties, and pursuant to rights under the contract with LCS, HFV ceased paying management fees to LCS and currently owes LCS in excess of $2.5 million dollars in past due management fees.
HFV says it does not intend to pay any arrearages owed to LCS during the bankruptcy case, but it does intend to reimburse LCS the postpetition salaries of two individuals in the ordinary course of business as accounted for in the proposed cash collateral budget.
The case representatives are as follows:
Cash Collateral Motion
The debtor requests the use of cash collateral of UMB Bank as bond trustee, on an interim basis through Nov. 19. Adequate protection for the bond trustee would be in the form of replacement liens, a superpriority administrative expense claim and financial reporting. Avoidance actions are excluded from the replacement liens in the proposed interim order, however, the proposed order says that the bond trustee reserves the right to to request that avoidance actions are included in the replacement liens pursuant to a final order.
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) and the “equities of the case” exception under section 552(b).
The carveout for professional fees is $250,000.
The proposed budget for the use of the cash collateral is HERE.
Other Motions
The debtor also filed various standard first day motions, including the following:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
First Day Hearing Agenda
| Summary |
| Henry Ford Village is a Dearborn, Mich.-based continuing care retirement community offering 841 independent living units, 96 assisted living units and 89 skilled nursing beds |
| Attributes the filing to significant entrance fee refund obligations and the Covid-19 pandemic’s impact on the retirement community’s census |
| Seeks the interim use of cash collateral negotiated with bond trustee; not seeking DIP financing at this time |
Henry Ford Village, Inc., a Dearborn, Mich.-based continuing care retirement community offering 841 independent living units, 96 assisted living units and 89 skilled nursing beds, filed for chapter 11 protection on Wednesday, Oct. 28, in the Bankruptcy Court for the Eastern District of Michigan. Facing significant entrance fee refund obligations and October occupancy levels at 66%, the debtor says it “will seek to run a marketing process while in Chapter 11 to find a strategic or financial acquirer or sponsor to put the Debtor on a solid financial footing to provide for the residents and patients that rely upon the Debtor now and into the future.” The Debtor believes it has sufficient cash collateral to continue operations during a potential sale process over the next thirteen weeks, but will likely require additional liquidity to complete the case. Continue reading for the First Day by Reorg team's case summary for the Henry Ford Village chapter 11 filing, and request a trial to access our coverage of thousands of other chapter 11 filings.
The debtor is not contemplating the need for DIP financing “at this time,” and instead requests the use of cash collateral that it says will be sufficient for a potential sale process over the next 13 weeks. A proposed interim cash collateral order has been negotiated with the bond trustee.
The debtors’ largest unsecured creditor apart from entrance fee refunds (including legacy and litigation-related refunds) is Life Care Services, the debtor’s management company. The debtor says it does not intend to pay Life Care Services management fee debt but will pay postpetition ordinary course salaries for two Life Care Services employees.
The first day hearing has been scheduled for tomorrow, Oct. 30, at 10 a.m. ET.
The company reports $100 million to $500 million in both assets and liabilities. The company’s prepetition capital structure includes:
- Secured debt:
- Tax exempt revenue bonds: $52.3 million
- 2008 Bonds: $38.45 million
- 2017 Bonds: $13.88 million
- Tax exempt revenue bonds: $52.3 million
- Unsecured debt:
- Entrance fee refunds
- Triggered: $7 million
- Untriggerd: $105.3 million
- Entrance fee refunds
The debtor failed to make a principal payment of $775,000 due under the bonds on May 15, and received a notice of default on Oct. 2. On Oct. 22, the bond trustee sent a notice that the bonds were due in full.
The bond trustee controlled various reserve accounts, as follows (with corresponding available funds immediately before the petition date): a revenue fund ($2,000), debt service fund ($6.00), debt service reserve fund ($4.3 million) and construction project fund ($83.00). On Oct. 22, when the bond trustee elected to accelerate obligations under the bond documents, it also set off against the debtor’s obligations all of the funds in the reserve accounts, which as a result currently have no funds.
To help offset the financial impact of the pandemic and provide additional liquidity, on April 10, HFV applied for PPP funding through its bank, Comerica Bank, and obtained a loan for approximately $2.7 million. The debtor also received $840,650 pursuant to the Centers for Medicare & Medicaid Services Expanded Accelerated and Advance Payments Program, which CMS “may attempt” to recoup in April 2021.
The company attributes the bankruptcy filing to significant, growing entrance fee refund obligations and the Covid-19 pandemic, which “made an already difficult situation unsustainable.” At the time HFV acquired the facility, it also inherited significant entrance fee refund liability “overhead,” with insufficient operating reserves set aside to cover entrance fee turnover and occupancy fluctuations as part of the ownership transfer. Further, HFV says it has had to contend with significant increased competition in the extended care marketplace and points to past events such as the housing crisis, the Great Recession and the bankruptcies of GM and Chrysler, all of which decreased the number of people in Michigan who could sell their homes and move into Henry Ford Village.
Citing official state records, the debtor reports that there were 5,155 deaths of Michigan residents ages 64 and up due to the pandemic, with another 2,429 deaths in that age group attributed to a combination of Covid-19 and pneumonia. Many seniors are generally staying at home and social distancing, and there remains a reluctance from certain of the applicable population to entertain moving from homes into the debtor’s type of residential facility at this time, the debtor says, adding that even for those who are still considering a move to a residential facility during the pandemic, HFV has been subject to strict limitations on visitors which prevented HFV from showing vacant units and tours to prospective residents.
HFV says it “aggressively” sought relief from its long-term debt obligations through a debt refinancing that was scheduled to close earlier in 2020, “when the financial markets were more favorable,” but this refinancing – “like so many other things” – was upended by the Covid-19 pandemic and not completed. Hence, in addition to its endemic challenges, Covid-19 became an additional and significant contributing factor compromising HFV’s financial viability.
The debtor also points to being a defendant in a 2014 class action lawsuit filed in Michigan state court regarding entrance fee liabilities that resulted in a settlement pursuant to which HFV was to pay $800,000 by Oct. 12, and for HFV to “in the future, add interest to the refund amount due after a certain amount of time had passed without a refund being made.” HFV sought relief from the court from making the settlement payment due to “its financial position” and the bond trustee’s opposition to the settlement payment. The court denied HFV’s motion and ordered HFV make the settlement payment within seven days, which led to the timing of the filing of the bankruptcy case.
The debtor is represented by Dykema Gossett in Bloomfield Hills, Mich., as counsel and FTI Consulting as financial advisor, with FTI’s Chad Shandler serving as the debtor’s CRO. KCC is the claims agent. The case has been assigned to Judge Mark A. Randon (case no. 20-51066).
Background
Henry Ford Village, Inc. was incorporated in 1992 as a Michigan nonprofit charity corporation for the purpose of providing housing, healthcare and other related services to the elderly. The debtor’s facility is located on the birth site of Henry Ford, on 35 acres of land, where it maintains 841 Independent living units, 96 assisted living units and 89 skilled nursing units, allowing residents to age in place by providing them the increased levels of healthcare and other services that are needed as residents age or health otherwise changes (short of hospital care). Both the independent living and assisted living levels of care consist of 100% private pay. The facility is operated by a staff of approximately 522 employees.
Due to circumstances created by Covid-19 and the population of the facility, noncritical visitation to the facility remains limited.
The facility’s census as of Oct. 22, 2020, is shown below:
All buildings within the facility are interconnected, allowing residents to walk from one neighborhood to another without regard to the weather. The facility includes two community buildings, dining rooms, a convenience store, bank, beauty salon/barber shops, game rooms, a music room, an aquatic center, classrooms, a library, a woodwork and hobby shop, a computer lab, an in-house cable television station, a non-denominational chapel, walking paths and a health club.
The facility was developed by Erickson Retirement Communities. The debtor says that the “Erickson Model,” despite being “a beautiful large senior living complex,” posed “significant challenges from a financial perspective and despite the efforts of different management companies for the Facility, HFV has not been able to successfully reorient the campus offering to better meet the challenges in itns market area for entrance fee-based senior living options.” Erickson was the manager of the facility until December 2009, when it landed in its own bankruptcy proceeding and was acquired by Redwood Capital Investments, which took over the facility’s management for a year before the debtor engaged Life Care Services to operate and manage the facility. Due to its financial difficulties, and pursuant to rights under the contract with LCS, HFV ceased paying management fees to LCS and currently owes LCS in excess of $2.5 million dollars in past due management fees.
HFV says it does not intend to pay any arrearages owed to LCS during the bankruptcy case, but it does intend to reimburse LCS the postpetition salaries of two individuals in the ordinary course of business as accounted for in the proposed cash collateral budget.
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| Life Care Companies LLC | Des Moines, Iowa | Contract | $ 2,791,049 |
| Plumley Settlement | Troy, Mich. | Class Action Lawsuit | 800,000 |
| One Care Pharmacy LLC | Troy, Mich. | Contract / Trade | 742,924 |
| Former Resident | N/A | Entrance Fee Refund | 307,778 |
| Former Resident | N/A | Entrance Fee Refund | 307,000 |
| Former Resident | N/A | Entrance Fee Refund | 244,000 |
| Former Resident | N/A | Entrance Fee Refund | 239,000 |
| Former Resident | N/A | Entrance Fee Refund | 236,000 |
| Former Resident | N/A | Entrance Fee Refund | 234,950 |
| Former Resident | N/A | Entrance Fee Refund | 225,000 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtor's Counsel | Sheryl L. Toby | Dykema Gossett | Bloomfield Hills, Mich. |
| Jong-Ju Chang | |||
| Patrick L. Huffstickler | San Antonio | ||
| Danielle N. Rushing | |||
| Debtor's Financial
Advisor and CRO |
Chad J. Shandler | FTI Consulting | New York |
| Debtor's Claims
Agent |
Evan Gershbein | Kurtzman Carson
Consultants |
El Segundo, Calif. |
| Co-Counsel to UMB
Bank, as Prepetition Bond Trustee |
Paul R. Hage | Jaffe Raitt Heuer
& Weiss |
Southfield, Mich. |
| Co-Counsel to UMB
Bank, as Prepetition Bond Trustee |
Daniel S. Bleck | Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo |
Boston |
| Eric R. Blyth | |||
| United States
Trustee |
Leslie K. Berg | Office of the U.S.
Trustee |
Detroit |
| Jill M. Gies | |||
| Timothy Graves | |||
Cash Collateral Motion
The debtor requests the use of cash collateral of UMB Bank as bond trustee, on an interim basis through Nov. 19. Adequate protection for the bond trustee would be in the form of replacement liens, a superpriority administrative expense claim and financial reporting. Avoidance actions are excluded from the replacement liens in the proposed interim order, however, the proposed order says that the bond trustee reserves the right to to request that avoidance actions are included in the replacement liens pursuant to a final order.
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) and the “equities of the case” exception under section 552(b).
The carveout for professional fees is $250,000.
The proposed budget for the use of the cash collateral is HERE.
Other Motions
The debtor also filed various standard first day motions, including the following:
- Motion to pay employee wages and benefits
- The debtor seeks authorization to pay approximately $300,000 in unpaid employee compensation.The debtor estimates approximately $18,100 in commission and bonus obligations. Additionally, the debtor estimates approximately $5,000 has accrued for the quarter ending in September 2020 on account of a milestone recognition program, where employees receive a gift on a quarterly basis. The debtor estimates that it also has medical plan liabilities of approximately $125,000 per month and accrued and unused employee PTO obligations of approximately $596,122.
- Motion to use cash management system
- The company has bank accounts with Comerica Bank and Merrill Lynch.
- Motion to extend the schedules/statements filing deadline to Nov. 30
- Motion to establish procedures to protect patient confidentiality
- Motion to provide utilities with adequate assurance
- Application to employ FTI Consulting as financial advisor
- Application to employ Dykema Gossett as counsel
- Application to appoint KCC as claims agent
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