January 30, 2019
Mayflower Communities, Inc. (d/b/a The Barrington of Carmel), a non-profit senior living retirement community of 271 units in the State of Indiana, filed for bankruptcy in the Northern District of Texas earlier this week. As a continuing care retirement community (“CCRC”), Barrington provides a battery of services to its residents ranging from recreational activities to assisted living, memory support, skilled nursing, and rehabilitation. Residents can get apartment homes on site.
The business model, however, is…well, interesting. Per the Company:
CCRCs, however, are often operationally and financially complex. More specifically, CCRCs can be challenging to operate because they require the maintenance of a broad range of services to seniors in varying stages of the aging process. Additionally, CCRCs require a steady flow of new residents in order to maintain day-to-day operations and to remain current on financial obligations, including, most importantly, obligations to current and former residents.
New residents = new revenue, which is also needed to meet debt obligations and comply with resident refund obligations.
Revenue comes from entrance fees ranging from approximately $316k to $650k, monthly serve fees from $2,800 to $7,600, and other per diem fees for skilled nursing, optional services fees and unit upgrade fees. In exchange, however, Barrington takes on a significant commitment. Per the company:
Unlike a pure rental retirement community, whereby a resident pays monthly fees for services (which fees may increase as the resident’s needs change), the Continuing Care Contract is a life care residency contract whereby a resident will pay an Entrance Fee and fixed monthly fees for Barrington’s commitment to provide life care services for the duration of the resident’s life, regardless of whether (i) the resident’s needs change over time which may require additional services to be provided by Barrington, or (ii) the costs of providing such services increase for Barrington. Significantly, Barrington’s commitment to provide life care services continue even if the resident’s financial condition deteriorates and is unable to continue to make its payments.
Non-profit, indeed. That sounds like a recipe for fiscal disaster.
The company reported $96.5mm in assets and $151.9mm in liabilities, including oversight fees owed to its management company, $52.4mm in resident refund obligations, $92.7mm (plus accrued interest) of long-term municipal bond obligations and $4.1mm of subordinated note obligations.
The aforementioned debt is a big problem. Compounding matters is the fact that the senior housing market in the geographic vicinity is “very competitive” which led to rental price and, by extension, margin, compression. Lower-than-projected revenues combined with the debt led to Barrington defaulting on its municipal bond obligations back in November. Consequently, the Bond Trustee commenced a receivership action. To forestall the Bond Trustee’s subsequent efforts to, among other things, displace the board and sole member, pursue a sale of the facility, and potentially reject continuing care contracts, the company filed for bankruptcy wherein it will leverage the “automatic stay” and “potentially pursue a sale of the Facility.”
Jurisdiction: N.D. of Texas
Legal: DLA Piper LLP (Thomas Califano, Rachel Nanes, Andrew Zollinger)
Financial Advisor/CRO: Ankura Consulting LLC (Louis Robichaux IV) & Larx Advisors Inc.
Investment Banker: Cushman & Wakefield U.S., Inc.
Claims Agent: Donlin Recano & Company (*click on company name above for free docket access)
Other Parties in Interest: