Mon 08/30/2021 11:35 AM
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Relevant Documents:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
DIP Financing Motion
First Day Hearing Notice

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 Regional Housing & Community Services chapter 11 request a trial here: https://reorg.com/trial




















Summary
Debtors own and operate eight senior living facilities in rural areas of Georgia and Alabama
Attribute filing to the Covid-19 pandemic’s impact on census numbers and failed prepetition negotiations with bond trustee UMB Bank and noteholder representative Tortoise Credit Strategies LLC
Request $5 million of DIP financing, with a special purpose entity controlled by Saybrook Fund Advisors serving as DIP lender
Seek to liquidate

Regional Housing & Community Services Corp. and numerous affiliates, which together own and operate eight senior living facilities in rural areas of Georgia and Alabama, known as the Manor House Facilities, filed for chapter 11 protection on Thursday, Aug. 26, in the Bankruptcy Court for the Northern District of Georgia. Facing mounting operating deficits in the wake of the Covid-19 pandemic, the company filed chapter 11 seeking to liquidate. The debtors are requesting $5 million in DIP financing in the form of a secured term loan facility from a special purpose entity controlled by Saybrook Fund Advisors, in addition to the use of cash collateral.

The first day declaration of GGG Partners managing partner Katie Goodman, who serves as the debtors’ CRO, says that the effects of the Covid-19 pandemic have “significantly harmed” the debtors’ financial viability. The company owes in excess of $55 million related to municipal bonds issued by the Wisconsin Public Finance Authority, the PFA, and states that there is “no realistic hope that the Facilities will ever be able to recover sufficient value such that the Bonds could be paid in full.” As the facilities’ census numbers fell, ALG Senior LLC, which provides management services, began funding the “continuously increasing” operating deficits, eventually advancing more than $3.7 million. “ALG has no obligation to and has informed the Debtors that it cannot fund operating shortfalls into perpetuity with no end to the pandemic in sight,” Goodman continues, noting that it is her understanding that prepetition negotiations with UMB Bank, as bond trustee, and Tortoise Credit Strategies LLC, as noteholder representative, failed, “necessitating this filing to orderly liquidate the Facilities with minimal impact on the residents.”

The first day hearing has been scheduled for tomorrow, Tuesday, Aug. 31, at 2 p.m. ET.

The company’s prepetition capital structure includes:

  • Secured debt:

    • Wisconsin Public Finance Authority-issued Series 2018 revenue refunding bonds: $55.5 million, including $46.8 million of principal



  • Equity: Regional Housing & Community Services Corp. is the sole member and parent company of each of the other debtors.


The debtors (other than Regional Housing & Community Services Corp.) are obligors on the bond debt.

In the fall 2016, the U.S. Securities and Exchange Commission began investigating the prior owners of the facilities, and in January 2017, brought an action against the prior owner through which a receiver was appointed. The receiver retained ALG Senior to continue to manage the facilities. An ALG affiliate, Agemark Acquisition, acquired the debtors’ facilities in April 2018 out of an SEC receiver sale. The acquisition was facilitated through a primarily tax-exempt bond structure. Tortoise initially lent funds pursuant to taxable notes to complete the purchase of the facilities. To retire the debt owed under those taxable notes, Tortoise purchased the PFA’s Series A bonds (original par amount $30.6 million) and Series B bonds (original par amount $200,000). Subsequently, in December 2018, the debtors closed on the sale of Series C bonds (original par amount $11.2 million) and Series D bonds (original par amount $590,000) to finance repairs and improvements to the facilities. The Series A bonds and Series C bonds are tax exempt, according to the first day declaration.

The debtors are represented by Scroggins & Williamson in Atlanta as counsel. Katie Goodman of GGG Partners is serving as the debtors’ CRO. KCC is the claims agent. The case has been assigned to Judge Paul W. Bonapfel (case No. 21-41034).

Background / Events Leading to the Bankruptcy Filing

The debtors consist of eight property companies that own eight senior living facilities, known as the Manor House Facilities, and eight operating companies that lease the facilities from the property companies. Debtor Regional Housing & Community Services Corp. is the 100% owner and single member of each of the other 16 debtors. The operating companies are parties to management agreements with nondebtor ALG Senior. The facilities collectively house approximately 218 senior residents and are located in rural cities or towns in Georgia and Alabama.

According to ALG, during the time it managed the facilities under the SEC receivership, the facilities generally did not generate sufficient cash flow to cover the operational expenditures, and there was an estimated $5 million needed in repairs, improvements and deferred maintenance. ALG and Tortoise reached an agreement on financing the repairs and improvements, with Tortoise ultimately providing the financing for the repairs and improvements through the Series C and Series D Bonds in December 2018. Following the repairs and improvements, the census at the facilities did “generally” start to increase but at a slower than projected rate due to construction delays and “a negative reaction” surrounding the SEC receivership. In March 2020, Covid-19 sent the senior care industry “into disarray.” During February 2020 to March 2021, monthly census dropped to 188 from 290, and the debtors incurred substantial additional monthly costs to deal with Covid-19-related issues, including protective personal equipment purchases.

“With considerable continuing uncertainty caused by the pandemic, no reported progress on negotiations with the bond trustee and Tortoise, and ALG’s self-reported financial hardships caused by the pandemic on its and its affiliates’ entire portfolio, the Debtors were left with no choice by to file for protection under Chapter 11 of the United States Bankruptcy Code.”

The debtors' largest unsecured creditors are listed below:


 










































































10 Largest Unsecured Creditors
Creditor Location Claim Type Amount
Moore & Van Allen PLLC Charlotte, N.C. Goods and
Services
$    92,193
Chatham County Tax
Commissioner
Savannah, Ga. Property
Taxes
43,084
Muscogee County Tax
Collector
Columbus, Ga. Property
Taxes
16,032
Osceola Supply Inc. Midway, Fla. Goods and
Services
11,734
One Source
Communications
Greenville, N.C. Utilities 9,401
Georgia Power Atlanta Utilities 9,010
Alabama Power Birmingham, Ala. Utilities 7,970
Montgomery Water
Works
Montgomery, Ala. Utilities 5,884
Floyd County Water
Department
Rome, Ga. Utilities 5,811
City of Gainesville Gainesville, Ga. Property
Taxes
4,379

 
The case representatives are as follows:



 





















































Representatives
Role Name Firm Location
Debtors' Counsel J. Robert Williamson Scroggins
& Williamson
Atlanta
Ashley Reynolds Ray
Matthew W. Levin
Debtors' CRO Katie S. Goodman GGG Partners Atlanta
Counsel to Saybrook
Fund Advisors
Shane Moses Foley & Lardner Los Angeles
Ashley McDow
U.S. Trustee Vanessa A. Leo Office of the
U.S. Trustee
Atlanta
Debtors' Claims
Agent
Evan Gershbein Kurtzman
Carson
Consultants
El Segundo, Calif.



DIP Financing Motion / Cash Collateral Motion

The debtors seek approval of a $5 million term loan DIP financing facility ($600,000 on an interim basis) from a special purpose entity controlled by Saybrook Fund Advisors. The DIP funding would supplement the debtors’ use of cash collateral.

The DIP financing bears interest at 9.5%, with 5% added for the default interest rate, and matures on the earlier of (i) March 31, 2022; (ii) substantial consummation or the effective date of a confirmed plan of reorganization; (iii) conversion to chapter 7; (iv) appointment of a trustee; (v) dismissal of the case; (vi) 45 days after entry of the interim order if the final order has not been entered; (vii) the date of entry of a final DIP order regarding a DIP facility funded by a lender other than the current proposed DIP lender; (viii) consummation of a sale of substantially all of the debtors’ assets; or (ix) an event of default.

The DIP proceeds may be used for (i) general working capital and operational expenses; (ii) administration of the bankruptcy case; and (iii) costs, expenses, closing payments and all other payment amounts contemplated in the DIP documents.

The DIP lender would be granted first priority priming liens on and security interests on all of the debtors’ assets, including property that is otherwise subject to a valid, perfected and unavoidable security interest or lien as of the petition date, including avoidance actions and their proceeds. The DIP liens would prime the bond trustee’s liens. The DIP lender would also be granted a superpriority administrative expense claim, which would have recourse to and be payable from avoidance actions, and the debtors would pay all of the DIP lender’s reasonable fees and expenses related to the DIP facility.

The facility includes various fees, including a $50,000 commitment fee and a 1% exit fee, provided that the exit fee would be waived if the DIP facility is satisfied pursuant to a successful credit bid by which the DIP lender or an affiliate acquires substantially all of the assets of the debtors.

The bond trustee would receive adequate protection liens (excluding avoidance actions and their proceeds), which would be junior to the DIP liens.

In addition, 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), subject to entry of the final order.

The carveout for the debtors’ professional fees is $50,000 and budgeted amounts for a professionals for an official committee of unsecured creditors. The UCC lien investigation budget is $15,000.

The proposed budget for the use of the DIP facility is HERE.

Other Motions

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



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