Sale of Oklahoma senior living facilities sought in bankruptcy

BY SourceMedia | MUNICIPAL | 11/23/22 12:58 PM EST By Karen Pierog

A non-profit Texas corporation that defaulted on bonds sold to purchase two senior living facilities in Oklahoma aims to sell those assets through its recent bankruptcy filing.

Leading Life Senior Living, Inc., which filed for Chapter 11 bankruptcy Nov. 18 in U.S. Bankruptcy Court for the Northern District of Texas, sold $30.275 million of tax-exempt and taxable revenue bonds through the Oklahoma Development Finance Authority in 2017 to purchase the memory care facilities.

It defaulted on payments starting in 2020. Berkeley Alternative Income Fund I, LLC, is the largest known holder of the issue's Series A bonds, according to court documents.

"The debtor filed this case with the purpose of marketing and selling its assets with the knowledge and cooperation of the bond trustee and Berkeley," Leading Life's attorney Rachael Smiley said at a court hearing Tuesday.

She added while the debtor seeks to obtain "the highest and best value for its assets through a court-approved sale," it also seeks to keep the two facilities running without any interruption in the quality of care it is providing to its residents.

Judge Mark Mullin granted initial motions in the case, including one on an interim basis authorizing Leading Life's access to post-petition financing and the use of cash collateral to keep the facilities located in Oklahoma City and Edmond operating.

The financing involves a senior-secured super-priority term loan from a special purpose vehicle affiliated with Berkeley, which also intends to submit "a stalking horse bid" to purchase the debtor's two facilities, according to Smiley. Such bidders are used to set a purchase-price floor for other bidders.

Smiley said Leading Life filed for bankruptcy after "suffering serious liquidity issues" prior to the installation of a new board and manager this spring.

"Although the situation has improved under the new board and the new management and the debtor's facilities are at approximately 80% occupancy, the debtor is still facing significant liquidity issues," she added.

In May, Leading Life and bond trustee UMB Bank entered into a forbearance agreement that prevented foreclosure proceedings predicated on a transition to new management and other conditions. The agreement's termination has been extended to Dec. 2.

As of Nov. 17, outstanding bond principal was $29.68 million and accrued and unpaid interest totaled nearly $3.25 million.

S&P Global Ratings, which rated the senior bonds A-plus and second-tier bonds BBB in 2017, has been downgrading the ratings since 2019, according to disclosure filings on the Municipal Securities Rulemaking Board's EMMA system. In July 2020, S&P dropped the ratings to D from CC following defaults.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.