Continuing Care Retirement Community The Terraces of Boise Agrees With Majority of Bondholders to Restructure $79M of Revenue Bonds in Out-of-Court Exchange

Relevant Documents:
Restructuring Term Sheet (July 26)
Official Statement 2014 Bonds
Issue Details

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Continuing care retirement center The Terraces of Boise in Boise, Idaho, is restructuring its $79 million in outstanding Series 2014 bonds through an out-of-court exchange, according to a notice posted to EMMA by bond trustee UMB Bank. The restructuring term sheet proposal attached to the notice says that the $79 million in Series 2014 bonds will be exchanged for $74 million in new Series 2021A bonds - whose proceeds will be used to redeem the same amount of tendering Series 2014 bonds - and $5 million in Series 2021B bonds - whose proceeds will be used to defease the same amount of nontendering Series 2014 bonds.

The proposal includes a $6.5 million issuance of Series 2021C bonds, subordinated if there is an event of default, issued to an affiliate in exchange for cash contribution and liquidity support as well as a $5 million issuance of subordinated Series 2021D bonds issued to a prior creditor in exchange for liabilities owed by the company.

The signatories to the proposal include funds affiliated with Invesco, Federated Hermes, Sit Fixed Income Advisors and Douglas J. White as an authorized signatory to an unidentified bondholder.

According to the notice, the borrower has been in default under the bond documents, and holders of a majority principal amount of the outstanding bonds - who have formed an informal steering committee - together with UMB Bank and the company have executed a restructuring term sheet dated as of July 26. According to the term sheet, the steering committee has until Aug. 10 to deliver an initial draft of a consent agreement, pursuant to which it agrees not to take any actions inconsistent with the terms of the term sheet.

The proposal provides for a waiver of all existing events of default upon execution. Further, if the proposed exchange is not consummated on or before Sept. 30, the steering committee would direct the trustee to withhold the payment of principal on the tendered Series 2014 bonds due Oct. 1 and waive any events of default as a result of the withholding.

Key terms of the restructuring term sheet are summarized below:

Restructuring of Series 2014 Bonds

Series 2021A Bonds - Exchange of Tendered Bonds

In exchange for the Series 2014 tendered bonds, holders would receive ratable shares of Series 2021A bonds in the aggregate principal amount of about $74 million. The bonds would be issued on the following terms:

Additional terms of the Series 2021A bonds are detailed in the term sheet. Broadly, the bond documents require the establishment of an operating account, revenue fund, bond fund and debt service reserve fund. Distribution of the money transferred into the revenue fund is governed by a distribution waterfall, to the extent no event of default exists.

Series 2021B Bonds - Defeasance of Nontendered Bonds

Members of the steering committee would purchase the Series 2021B bonds in the aggregate principal amount of about $5 million. The bonds would accrue interest at 8% and mature in 2029. The proceeds of the Series 2021B bonds would be applied to the defeasance of an equal principal amount of Series 2014 bonds.

The Series 2021B bonds would be taxable and interest-only (but current-pay) for three years after issuance, with first principal payment due Oct. 1, 2025, subject to redemption in full (but not in part) on or after Oct.1, 2025. They would be issued pari passu with the Series 2021A bonds with respect to payment and security and Issued by the borrower pursuant to a “Direct Company Indenture.”

Series 2021C Bonds - Affiliate Contribution

Affiliate HumanGood NorCal will make a $6.5 million cash contribution to the pay costs of the restructuring and provide liquidity as well as sign an unfunded $1.5 million liquidity support agreement, agreeing to fund upon the occurrence of a “Liquidity Default.” In exchange for the cash contribution, HumanGood NorCal will receive $6.5 million Series 2021C bonds, and in the event that HumanGood NorCal funds the liquidity support agreement, then HumanGood NorCal will receive additional $1.5 million pari passu Series 2021C bonds in the aggregate principal amount of $1.5 million.

The Series 2021C bonds will accrue interest at 0% for the first three years and 2% thereafter. Payments of principal and interest on the Series 2021C bonds will be made only if the borrower pro forma is in compliance with the debt service coverage ratio covenant in the Series 2021 bond documents and has at least 150 days’ cash on hand. Upon the occurrence of an event of default under the Series 2021 bond documents, the Series 2021C bonds will be subordinated to the Series 2021A bonds and the Series 2021B bonds with respect to repayment and security.

Series 2021D Bonds - Prior Liquidity Support

GCI Boise LP will receive $5 million in subordinated Series 2021D bonds in return for previously committed liquidity support and an additional liability owed by the company. The Series 2021D bonds will not accrue interest and will not be payable for so long as any Series 2021A, Series 2021B or Series 2021C bonds are outstanding.

Management Fees

Following the effective date, there will be a management fee equal to 5% of revenue, which provides for 2% of revenue on a “current” basis and 3% as a deferred fee, subject to compliance with DSCR and liquidity requirements.

Operating and Financial Covenants

The indenture contains the following operating/financial covenants: (i) days cash on hand; (ii) debt service coverage ratio covenant; (iii) occupancy covenants; and (iv) trade payable covenant. The term sheet includes schedules of minimum days cash on hand and minimum occupancy levels. The term sheet also calls for certain reporting requirements and operational updates.

The terms of the various covenants as well as the terms for failure to meet the covenants are further detailed in the term sheet.

Milestones

The term sheet provides that the parties will use their best efforts to consummate the proposed exchange on or before Sept. 30.

The term sheet sets forth the following milestones:

• July 23: Term sheet approved by the parties;


• Aug. 10: Initial draft of consent agreement to be delivered by the trustee;


• WIthin 10 business days of delivery of initial draft: Consent agreement approved and executed by the parties;


• Sept. 22: First draft of master trustee indenture, bond indenture and other key Series 2021 bonds documents to be delivered by the trustee;


• Within 30 days delivery of initial drafts: Definitive forms of key Series 2021 bond documents approved by the parties; and


• Nov. 18: Effective date of proposed exchange (including funding of defeasance escrow).