Thu 07/08/2021 18:34 PM
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UPDATE 1: 6:34 p.m. ET 7/8/2021: On Wednesday, July 7, S&P lowered its rating on the Series 2018A and Series 2018B senior living bonds issued in connection with the Florida-based Superior Residences senior living project from ‘CC’ to ‘D,’ reflecting payment default on the bonds. The bonds were issued by Florida’s Capital Trust Agency. S&P previously disclosed in its June 30 report that it would lower the rating to ‘D’ in the event the borrower, H-Bay Ministries, failed to make full payment on the rated bonds on any due date. Read below as our Americas Municipals team provides an update on the H-Bay Ministries S&P rating and click here to request a trial for access to the relevant documents below as well as our analysis and reporting on hundreds of other stressed, distressed and performing credits.

Original Story 4:40 p.m. UTC on July 6, 2021

Indenture Trustee Discloses July 1 Superior Residence Bond Payments Will Not Be Made as Borrower Fails to Make Necessary Funding

Editor’s Note: Reorg's coverage of H-Bay Ministries Inc. is part of an expansion of our municipals-focused offerings. Please reach out to for more information.

Relevant Documents:
Notice (July 1)
Report (Q1 2021)
Financial Statements
Official Statement
Issuer Homepage

Trustee Wilmington Trust disclosed on July 1 that there were insufficient funds in the bond funds to make the required payments of principal and interest due on the Series 2018 bonds issued by the Capital Trust Agency in connection with the Florida-based Superior Residences senior living project. The notice states that the borrower, H-Bay Ministries Inc., failed to make the necessary transfers to the trustee during the month of June.

H-Bay Ministries owns five senior living facilities in Florida, doing business as Superior Residences; the communities collectively provide 340 quality affordable assisted living and memory support units for senior citizens.

Capital Trust Agency issued $81.975 million of senior living revenue bonds in connection with the project for the purpose of financing the cost of the acquisition of the five assisted living and memory care facilities, including land, buildings and equipment. The bond proceeds were also to be used to pay certain capital expenditures and startup costs related to the project, fund certain reserve funds and pay a portion of the costs of issuing the bonds.

The Series 2018 bonds comprise $39.68 million in Series 2018A-1 bonds, $13.34 million in Series 2018A-2 bonds, $20.235 million in Series 2018B bonds (second tier) and $8.72 million in Series 2018C bonds (third tier).

The July 1 notice also states that as a result of the borrower’s failure to transfer the necessary funds to the bond accounts, the trustee rescinded two prior notices of partial redemption, both dated May 26, related to certain Series 2018B and Series 2018C bonds, and that because the partial redemptions cannot take place as scheduled, “interest will continue to accrue on such Bonds (as well as on all of the Bonds).” In addition, Wilmington Trust discloses that it “has contacted the Borrower and the Manager of the Borrower with regard to the failure to transfer to the Trustee all Project Revenues and all other amounts and payments due under the Bond Documents,” adding that it “anticipates posting notice in the near future to provide further information to Bondholders.”

In November 2020, Validus Senior Living Communities announced that it would be the new operator of the five H-Bay Ministries-owned Superior Residences communities in Florida, which are located in Brandon, Clermont, Ocala, Lecanto and Niceville.

H-Bay Ministries is a controlled affiliate of The Emmaus Calling, a Texas nonprofit, non-stock corporation formed in 1995 “for the purpose of providing … affordable housing and assisted living opportunities for seniors.” Glen Hope Harbor Inc., another controlled affiliate of The Emmaus Calling, included going-concern language in its draft 2020 annual report, which was posted to EMMA on May 28.

Financial Reporting

The company’s financial statements for the year ending Dec. 31, 2020, disclose that its debt service coverage ratio, or DSCR, for the year was “below 1.00 to 1.00 which is considered a default under the Loan Agreement.” In a prior notice of default posted to EMMA on June 12, 2020, Wilmington Trust disclosed that the borrower had defaulted on the basis of a failure to maintain a DSCR equal to or greater than 1.00x on all outstanding bonds and other long-term indebtedness for fiscal year 2019.

For the three months ending March 31, the company reported total revenue of $3.19 million, which was “11.28% below budgeted amount with rental income 10.65% below budgeted amount.” The company reported operating expenses of $3.58 million, which was 16.24% below budgeted amount. The first-quarter 2021 report disclosed that, period-to-date, H-Bay Ministries’ total net income was negative $389,560.25.

The first quarter report states that, for the quarter, combined property average occupancy was 56%, with 246 units occupied, and provides the following summary of monthly occupancy and average occupancy for the quarter for each of the five properties:

The first-quarter report discloses that for the three-month period ending March 31, the company’s debt service coverage ratio on the second- and third-tier bonds was below the 1.05x requirement. H-Bay Ministries explains that “[b]udgeted expectations were aggressive in hopes that Covid-related concerns and limitations would lift early in 2021,” adding that although those expectations were “slowly coming to fruition,” they “did not bear fruit in Q1.” H-Bay Ministries observed that the actual to budget comparisons for the three months ending March 31 were “striking” and that budgets would be “revisited in the event of continued slow growth.”

According to the report, at the end of the first quarter, the company had 12 days cash on hand.

Ratings Reports

In May, S&P Global Ratings extended its CreditWatch placement, with negative implications, on its B+ rating on the Series 2018A and 2018B bonds, explaining that it had originally placed the bonds on CreditWatch on March 1 “based on persistently low occupancy - reported as 60% for the full year - leading to debt service coverage for 2020 that is below 1x on both tiers of bonds, as per our calculations.”

On June 30, S&P dropped H-Bay Ministries’ Series 2018A senior living bonds to CC from B- with outlook negative, citing management’s indication to the ratings agency on June 29 that the project would not be able to make full and timely debt service payment on the bonds outstanding for July 1. The ratings report states that despite its efforts, S&P was unable to obtain information from the trustee regarding the various balances in the trust estate accounts, therefore it could not be definitively determined whether a partial payment might be made. The report adds that failure to make a full payment on the bonds will result in a further lowering to D.

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