Thu 08/26/2021 15:23 PM
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Relevant Documents:
Monthly Report (July 31)
Call Notice
Monthly Report (June 30)
Issuance Homepage

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Fort Worth, Texas-based continuing care retirement community Tarrant County Senior Living Center Inc., dba The Stayton at Museum Way, has failed to satisfy its debt service coverage ratio covenant on its June 30 testing date, leading the company to retain FTI Consulting to provide marketing and strategic advice to address Stayton’s financial issues, as required under its bond documents. Stayton has also retained Sidley Austin as legal counsel. Nick Harshfield, CFO of Stayton’s parent company, Lifespace Communities, signaled on an Aug. 18 investor call that Sidley’s role is to “guide us through any requirements we may have in the bond documents.”

Another Lifespace Communities entity, Edgemere, is negotiating a forbearance agreement with its bond trustee and holders after defaulting on its debt obligations. Edgemere has also retained FTI and Sidley Austin to assist with these negotiations.

Stayton is the obligor on $112.3 million of Series 2020 retirement facility revenue bonds issued by Tarrant County Cultural Education Facilities Finance Corp. The bonds were issued as part of Stayton’s broader restructuring through a prepackaged chapter 11 filed in the Bankruptcy Court for the Northern District of Texas in November 2019. The company emerged from bankruptcy on Jan. 3, 2020.

As part of the deal, Stayton refinanced its existing municipal bond debt on a tax-exempt basis for the Series 2020 bonds. Pursuant to the amended master indenture, the liens and security interests granted in the original indenture have continued to secure the obligations under the new bonds. This collateral includes substantially all of Stayton’s assets and gross revenue. Further, Lifespace was substituted as the sole corporate member of Stayton in place of Senior Quality Lifestyles Corp., or SQLC, under an affiliation agreement, according to court filings in the bankruptcy. Stayton has maintained its separate corporate identity and ownership and is also separately responsible for its operations.

The Series 2020 bonds have an occupancy covenant, historical debt service coverage ratio covenant and liquidity covenant. The occupancy covenant is 88% independent living apartments and is tested quarterly. The testing dates for the debt service coverage ratio and the liquidity covenant are June 30 and Dec. 31 and began on June 30, 2021. According to Harshfield, as of June 30, The Stayton was in compliance with the occupancy covenant and the liquidity covenant, but it was not in compliance with the historical debt service coverage requirement. Specifically, as of June 30, the Stayton reported 91.5% occupancy across all living segments. The liquidity covenant requires 120 days’ cash on hand, a requirement that was satisfied by the 163 days’ cash on hand as of June 30. Calculation of the days cash on hand includes amounts available from a $6 million liquidity support agreement provided by Lifespace.

The CCRC’s debt service covenant ratio was tested at 0.9x as of June 30, just short of the required 1.1x covenant. The historical debt service coverage ratio covenant level is 1.10 for the first two testing dates and 1.20 thereafter. On the investor call, management said that the DSCR for July was 0.7x. According to the indenture for the notes annexed to the disclosure statement from the bankruptcy docket, it is an event of default if the DSCR is under 1.0x.

Lifespace announced on Aug. 3 that it intends to issue $120 million in Series 2021 revenue bonds, to which Fitch Ratings assigned a BBB rating. Although Stayton is not part of the obligated group, the ratings report notes that Lifespace’s $6 million liquidity support agreement with Stayton is funded by $3 million of cash from entities outside of the Lifespace obligated group, but the remaining $3 million, if called upon, could be funded using obligated group funds.
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