Relevant Document:
Notice
Glen Hope Harbor, a Texas-based provider of memory care facilities and borrower of $38.1 million in senior living revenue bonds, has defaulted on its obligations under the bond documents, according to an EMMA filing posted by Wilmington Trust NA, the bond trustee.
The defaults arise from Glen Hope Harbor’s failure to transfer, or cause RCM/Retirement Center Management, its manager, to transfer any project revenue during November and December to the trustee. The trustee also contends that RCM has failed to respond to its requests for information regarding the project revenue, the status of the project and “the situation causing the Project Revenues to be withheld,” which are events of default under the bond documents as well.
The notice explains that Glen Hope Harbor has granted the trustee a security interest in the project revenue as security for amounts due to the trustee on account of the bonds, and it is therefore required to pay or cause RCM/Retirement Center Management to pay all project revenue to the trustee. The notice states that the project revenue is ultimately distributed through a waterfall, first to fund the monthly deposits for interest and principal due on the bonds and then to restore the debt service reserve accounts, if there is a deficit, among other things.
The trustee says it has previously notified bondholders that Glen Hope Harbor has failed to deposit project revenue that is sufficient to cover debt service due on the bonds.
Most recently, as reported, Glen Hope Harbor did not deposit sufficient funds with the trustee to make the Aug. 1 debt service payments due on the bonds, resulting in a draw on the debt service reserve accounts in order to provide holders with only one half of the interest due and none of the principal due on the $3.6 million Series 2015B bonds, the notice recounts.
The notice emphasizes that Glen Hope Harbor and RCM’s “failures to transfer the Project Revenues to the Trustee, and each of the Borrower’s failures to transfer or to cause RCM to transfer the Project Revenues to the Trustee, constitutes an Event of Default under,
without limitation, the Loan Agreement, Sections 3.2 and 7.1; the Indenture, Sections 5.04 and 8.01; and under the Mortgage, Section 8.1.”
Wilmington Trust states that the manager’s need to pay the budgeted operating expenses of the project could not explain the failure to transfer any project revenue to the trustee. The trustee explains that it disburses the project revenue using the priority waterfall required under the indenture, and the disbursement of budgeted operating expenses to fund and maintain the project would be lower priority than disbursements to the accounts for principal and interests of the bonds.
The trustee may, in its discretion, give certain disbursements higher priority if there is an event of default. In light of this, the notice says that the trustee has been transferring operating expenses of the project to the borrower ahead of reserving amounts for payment of interest and principal due on the bonds and reimbursing the DSRF. “This was done in order to preserve the Project, as the primary collateral of the Bonds and the sole source of Project Revenues, pursuant to Section 8.11(a) of the Indenture,” according to notice.
The trustee states that it demands “prompt remedy of each and every default” including the “immediate transfer to the Trustee of all Project Revenues.” The notice references additional events of default identified in prior disclosures as well.