Relevant Document:
Notice (Nov. 16)
Bond trustee UMB Bank disclosed in a notice posted to EMMA today the terms of its six-month
forbearance agreement with the borrower, Richfield Living. The agreement was previously disclosed in the company’s fourth-quarter report, which was posted to EMMA on Saturday, Nov. 13.
The forbearance agreement was effective as of Nov. 8 and, subject to early termination as a result of a breach of its terms, expires on March 31, 2022. Pursuant to the agreement, the borrower has agreed to manage the facility and its operations during the forbearance term “consistent with an approved budget included as an exhibit to the Forbearance Agreement, subject to certain permitted variances.” The trustee has agreed to refrain from exercising remedies resulting from the borrower’s default in making a monthly payment required in September and other covenant failures, which also constitute events of default under the bond documents.
The notice states that the trustee entered into the forbearance agreement with the approval and consent of holders of a majority in principal amount of the bonds.
The forbearance agreement provides that $396,800.51 will be transferred from the Series 2019 construction fund to replenish the 2019 debt service reserve fund, which was
drawn on to make the payment that was due on the 2019 bonds on Sept. 1. Pursuant to the agreement, the borrower may draw up to $1.323 million from the funds remaining in the 2019 construction fund “for demolition and abatement as part of Phase IA of the construction project for which the Series 2019 Bonds were issued.”
During the forbearance term, the borrower will not be required to pay debt service on the bonds, “except to the extent of (i) the funds remaining in the interest accounts (funds will be transferred from the 2019 Construction Fund to the interest accounts for the Series 2019A and Series 2019B Bonds, in the amounts of $2,033,928.13 and $346,875.00, respectively, for such purpose), and (ii) all funds on hand at the Borrower in excess of 45 days cash on hand at the end of each calendar month.”
The agreement provides that from the funds remaining in the 2019 construction fund, the trustee will establish and fund an operating reserve with $4.8 million. The borrower is required to submit on the first business day of each month during the forbearance term “a requisition to the Trustee to draw an amount from the Operating Reserve equal to the sum of (i) operating expenses of the Borrower consistent with the approved budget, less any funds on hand or available to the Borrower, and (ii) $1,400,000.”
The forbearance agreement requires the borrower to provide “a detailed itemization of the expenses to be paid with any such draw on the Operating Reserve.”
The notice explains that the effect of the requisition process “will be that, as long as no default occurs under the Forbearance Agreement, the Borrower will always have $1,400,000 in cash available to pay expenses of operations of the Facility” (emphasis added).
According to the notice, the forbearance agreement also includes the following terms:
- The borrower will grant the trustee “security interests in all of the Borrower’s depository accounts, by the execution of Depository Account Control Agreements encumbering such depository accounts”;
- The borrower has agreed to maintain occupancy at its facility “at levels set out in the Forbearance Agreement, with occupancy requirements for independent living and assisted living separately stated”;
- During the forbearance term, the borrower “will use commercially reasonable best efforts to sell 52 beds licensed for skilled nursing on terms reasonably acceptable to the Trustee, and will inform the Trustee of all offers and proposals for purchase of such licensed beds”;
- During the forbearance term, the borrower “has agreed that the construction of 64 new independent units for independent living on its main campus, known as ‘Phase IB’ and described in the official statement pertaining to the 2019 Bonds, will be deferred and reevaluated from a financial and operational perspective, with such analysis and reevaluation to be completed by January 31, 2022”;
- The borrower will retain a financial advisor reasonably satisfactory to the trustee and the holders of a majority of the bonds “to assist the Borrower with preparation of long term projections for the operations of the Facility”; and
- Within 30 days of the execution of the forbearance agreement, the borrower will grant the trustee “a mortgage on two tracts of additional real estate owned by the Borrower in Roanoke County, Virginia, which previously were unencumbered.”
The trustee says it anticipates that there will be periodic calls with the borrower in which it will report on the results of its operations in the previous month. The trustee also intends to issue periodic notices to holders regarding the borrower and its operating results relevant to the bonds and the borrower’s economic and operational performance during the forbearance term.