Richfield Living
CCRC Richfield Living Likely to Suspend Debt Service Payments Amid Liquidity Shortfall; Management ‘Extremely Confident That This Is a Short-Term Problem’
Tue 05/04/2021 18:00 PM
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Relevant Documents:
Supplemental Information - 5/4/21 Call
Financial Information - Fiscal Q2 Ended 3/31/21
Roanoke Campus - April 2021 Monthly Report
DHG Consultant Report - 10/13/20
Management Response to DHG Report
Management of continuing care retirement community Richfield Living said on a bondholder call today that it believes “it would be the best move” to suspend principal and interest payments on all its outstanding debt, effective immediately. According to project CFO Cherie Grisso, there are “potential and foreseeable liquidity concerns” ahead, given project and revenue delays, driven in part by a Covid-19 outbreak in the fourth quarter of 2020, during which admissions to Richfield’s facilities were prohibited and work on a new facility was delayed. Over the course of the outbreak, which occurred across “various facilities on campus,” Richfield burned an estimated $3 million of cash with the dip in intakes and revenue and increased costs for Covid-19-related testing, pay and supplies. To read more of our Americas Municipals' coverage of the Richfield Living debt situation as well as our coverage of other timely, objective and actionable intelligence covering higher yielding and liquid municipal issuers request a trial here.
Richfield estimates a $10 million liquidity shortfall over the next 12 to 18 months in a “worst case scenario,” with management hopeful that suspension of debt service payments will help close the funding gap. Additionally, management noted that the Richfield master trust indenture allows for an additional $2 million line of credit, though none has been obtained. Further, there is an active and ongoing process to sell 52 beds, although no viable deal has yet materialized. “We are looking for some creative financing,” Grisso said.
Nevertheless, management emphasized today its belief that the liquidity and revenue declines at Richfield are not long-term issues. “The bottom line is we feel extremely confident that this is a short-term problem. We want to figure out ways to work with [bondholders] to get through the short-term liquidity challenges,” Grisso said, adding that “the project outcomes are still achievable in the long run.”
Even as Grisso emphasized the recent Covid-19 outbreak as being the driver of liquidity stress and delays, the community had not been meeting covenant requirements for several quarters and operating trends began to decline even before the onset of Covid-19 in early 2020.
Richfield Living, which owns and operates a continuing care retirement community in Salem, Va., is nearing completion on a multiyear project to expand and reposition its existing campus, Richfield I, as well as construct a new, second campus, Richfield II. Work on Richfield II, to consist of 40 transitional care beds and 76 nursing beds, kicked off last year, with construction funded by $37.7 million in new Series 2020 bonds. Richfield’s 2019 Series A and Series B bonds are backed by the existing Richfield I facilities.
During the fiscal year ended Sept. 30, 2020, Richfield was unable to meet its required 99% operating ratio, and as a result, management hired Dixon Hughes Goodman to review its plans and provide a consultant’s report, as required under the 2020 bond indenture. The consultant report, dated Oct. 13, 2020, describes declining performance at Richfield, with negative operating trends beginning even before the onset of the Covid-19 pandemic and the resultant declines in occupancy. The report states that Richfield “has experienced a relatively consistent net operating ratio for fiscal years 2017 through 2019. The net operating ratio for March 31, 2020 and June 30, 2020 are significantly higher (unfavorable) than the historical experience of the Community.”
In terms of occupancy, DHG’s report notes that while Richfield has historically been able to maintain overall occupancy above 80%, beginning with the quarter ended March 31, 2020, occupancy dipped below these historical levels. Occupancy declines in 2020, especially within skilled nursing, were consistent both with management expectations and with the broader industry, DHG’s report says, adding that 2020 was the least favorable year for skilled nursing since 2017.
Unlike occupancy, however, Richfield’s payor mix within skilled nursing has not met management’s expectations. The report explains, “A substantial factor to the declining revenue trend[] is the significant decrease in private pay and managed care/Medicare for the quarter ending March 31, 2020 and thereafter. Exacerbating the decline in skilled nursing profitably are the inherent operating inefficiencies of the older, multi-level health center, which tend to drive higher fixed cost. These inefficiencies are difficult to mitigate in times of lower occupancy levels,” the report says.
Moreover, even as occupancy rates and revenue have declined, costs - both for agency and overtime staffing - have increased. “Management has cited inadequate payroll reporting and the need to improve quality as the main reasons for rising costs in a time of declining occupancy,” the report says, also noting that costs per occupied skilled nursing bed have increased, marking negative net operating margin trends.
Richfield noted in subsequent disclosures that the Covid-19 pandemic led to a shortage of qualified skilled nursing staff in its operating region.
Also discussed in the DHG report is Richfield’s two-star rating on the Centers for Medicare & Medicaid Services’ five-star scale, which serves to “inform potential residents and family members about the various skilled nursing options in a given market.” The two-star rating is considered “below average” and has affected Richfield’s standing as a preferred provider of post-acute care in the area. “Carilion Roanoke Memorial Hospital, located in the Community’s primary market area, has stated that to be on its preferred provider list a minimum CMS 3-Star rating is required,” the report notes.
Grisso added today that management is working quickly to complete a refreshed five-year projection model, which is updated to reflect project delays, lost revenue and Covid-19-related costs experienced through March. The forecast will be available to investors as soon as possible, Grisso said.
Relevant Documents:
Supplemental Information - 5/4/21 Call
Financial Information - Fiscal Q2 Ended 3/31/21
Roanoke Campus - April 2021 Monthly Report
DHG Consultant Report - 10/13/20
Management Response to DHG Report
Management of continuing care retirement community Richfield Living said on a bondholder call today that it believes “it would be the best move” to suspend principal and interest payments on all its outstanding debt, effective immediately. According to project CFO Cherie Grisso, there are “potential and foreseeable liquidity concerns” ahead, given project and revenue delays, driven in part by a Covid-19 outbreak in the fourth quarter of 2020, during which admissions to Richfield’s facilities were prohibited and work on a new facility was delayed. Over the course of the outbreak, which occurred across “various facilities on campus,” Richfield burned an estimated $3 million of cash with the dip in intakes and revenue and increased costs for Covid-19-related testing, pay and supplies. To read more of our Americas Municipals' coverage of the Richfield Living debt situation as well as our coverage of other timely, objective and actionable intelligence covering higher yielding and liquid municipal issuers request a trial here.
Richfield estimates a $10 million liquidity shortfall over the next 12 to 18 months in a “worst case scenario,” with management hopeful that suspension of debt service payments will help close the funding gap. Additionally, management noted that the Richfield master trust indenture allows for an additional $2 million line of credit, though none has been obtained. Further, there is an active and ongoing process to sell 52 beds, although no viable deal has yet materialized. “We are looking for some creative financing,” Grisso said.
Nevertheless, management emphasized today its belief that the liquidity and revenue declines at Richfield are not long-term issues. “The bottom line is we feel extremely confident that this is a short-term problem. We want to figure out ways to work with [bondholders] to get through the short-term liquidity challenges,” Grisso said, adding that “the project outcomes are still achievable in the long run.”
Even as Grisso emphasized the recent Covid-19 outbreak as being the driver of liquidity stress and delays, the community had not been meeting covenant requirements for several quarters and operating trends began to decline even before the onset of Covid-19 in early 2020.
Richfield Living, which owns and operates a continuing care retirement community in Salem, Va., is nearing completion on a multiyear project to expand and reposition its existing campus, Richfield I, as well as construct a new, second campus, Richfield II. Work on Richfield II, to consist of 40 transitional care beds and 76 nursing beds, kicked off last year, with construction funded by $37.7 million in new Series 2020 bonds. Richfield’s 2019 Series A and Series B bonds are backed by the existing Richfield I facilities.
During the fiscal year ended Sept. 30, 2020, Richfield was unable to meet its required 99% operating ratio, and as a result, management hired Dixon Hughes Goodman to review its plans and provide a consultant’s report, as required under the 2020 bond indenture. The consultant report, dated Oct. 13, 2020, describes declining performance at Richfield, with negative operating trends beginning even before the onset of the Covid-19 pandemic and the resultant declines in occupancy. The report states that Richfield “has experienced a relatively consistent net operating ratio for fiscal years 2017 through 2019. The net operating ratio for March 31, 2020 and June 30, 2020 are significantly higher (unfavorable) than the historical experience of the Community.”
In terms of occupancy, DHG’s report notes that while Richfield has historically been able to maintain overall occupancy above 80%, beginning with the quarter ended March 31, 2020, occupancy dipped below these historical levels. Occupancy declines in 2020, especially within skilled nursing, were consistent both with management expectations and with the broader industry, DHG’s report says, adding that 2020 was the least favorable year for skilled nursing since 2017.
Unlike occupancy, however, Richfield’s payor mix within skilled nursing has not met management’s expectations. The report explains, “A substantial factor to the declining revenue trend[] is the significant decrease in private pay and managed care/Medicare for the quarter ending March 31, 2020 and thereafter. Exacerbating the decline in skilled nursing profitably are the inherent operating inefficiencies of the older, multi-level health center, which tend to drive higher fixed cost. These inefficiencies are difficult to mitigate in times of lower occupancy levels,” the report says.
Moreover, even as occupancy rates and revenue have declined, costs - both for agency and overtime staffing - have increased. “Management has cited inadequate payroll reporting and the need to improve quality as the main reasons for rising costs in a time of declining occupancy,” the report says, also noting that costs per occupied skilled nursing bed have increased, marking negative net operating margin trends.
Richfield noted in subsequent disclosures that the Covid-19 pandemic led to a shortage of qualified skilled nursing staff in its operating region.
Also discussed in the DHG report is Richfield’s two-star rating on the Centers for Medicare & Medicaid Services’ five-star scale, which serves to “inform potential residents and family members about the various skilled nursing options in a given market.” The two-star rating is considered “below average” and has affected Richfield’s standing as a preferred provider of post-acute care in the area. “Carilion Roanoke Memorial Hospital, located in the Community’s primary market area, has stated that to be on its preferred provider list a minimum CMS 3-Star rating is required,” the report notes.
Grisso added today that management is working quickly to complete a refreshed five-year projection model, which is updated to reflect project delays, lost revenue and Covid-19-related costs experienced through March. The forecast will be available to investors as soon as possible, Grisso said.
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