Midwest Christian Villages files for Chapter 11

Senior-living facilities operator Midwest Christian Villages ? which does business as Christian Horizons and has issued bonds through the Illinois Financial Authority and the Health and Educational Facilities Authority of Missouri as Christian Homes, Inc. ? filed for Chapter 11 bankruptcy last week.

Christian Horizons and its affiliates filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Eastern District of Missouri on July 16. The debtors anticipate that all of their assets will be sold.

According to Christian Horizons' Chapter 11 petition, it expects that funds will be available for distribution to unsecured creditors.

Its obligated group spans eight communities in Illinois, Indiana, Iowa and Missouri. That includes 355 independent living units, 270 assisted living units and 579 skilled nursing beds.

The 501(c)(3) nonprofit, based in St. Louis, reported $79.976 million of tax-exempt bond debt as of March 31, according to a quarterly report posted to the Municipal Securities Rulemaking Board's EMMA disclosure website in May.

Christian Horizons' outstanding bonds include the Missouri Health and Educational Facilities Authority's Series 2018 senior living facilities revenue bonds and the Illinois Finance Authority's Series 2021A revenue bonds and Series 2021B taxable revenue bonds. The IFA also issued $29.88 million of revenue refunding bonds for the senior-living operator in 2016.

The bonds are secured by a pledge of gross revenues, a first-lien mortgage and security interest in the facilities and a debt service reserve fund.

The $29.365 million of Series 2018 bonds were issued to refund the outstanding principal amounts of the Illinois Finance Authority revenue refunding bonds, Series 2007A; the County of Pottawattamie, Iowa, revenue refunding bonds, Series 2007E; and the Industrial Development Authority of the city of Joplin, Missouri, revenue refunding bonds, Series 2007F, according to the official statement. The bond proceeds were also used to fund a debt service reserve for the Series 2018 bonds and to pay issuance costs.

The $12.86 million of Series 2021A and $11 million of Series 2021B bonds were issued to finance improvements to various senior living communities; to refund outstanding IFA Series 2010 revenue bonds issued for the operator; to refinance a bank line of credit for $10 million, which was used to redeem outstanding corporate general obligation debt; to fund an additional deposit to the master debt service reserve fund; and to pay issuance costs for the Series 2021 bonds.

The July 18 notice of bankruptcy filing says that under the bond documents, multiple events of default have occurred "and are continuing." Christian Horizons stopped making monthly principal and interest payments to the bond trustee in February, according to Fitch Ratings.

"The trustee has declared immediately due and payable the principal amount of all outstanding obligations, together with the accrued interest thereon, under the Master Trust Indenture," the notice reads. "Further, and also at the direction of a majority of [bond] holders, the trustee has exercised a setoff of certain amounts on deposit in the funds and accounts established under the Master Indenture and bond indentures."

The corporation's board appointed Healthcare Management Partners, LLC as its chief restructuring officer.

In April, Fitch downgraded Christian Horizons' issuer default rating and outstanding bonds to C from CCC-plus, citing its belief that default and debt restructuring were "imminent." It said it expected the operator to reach insolvency and restructure its debt within the outlook period.

"CH does not have sufficient unrestricted cash on hand to meet its current debt service obligations," Fitch noted in its rating action commentary.

Fitch pointed to soft demand and Christian Horizons' decision to locate campuses in "weak markets with predominantly shrinking populations and median household incomes below state and national averages." It noted that despite a move to roughly halve the skilled nursing bed count, operating performance had remained weak.

Fitch also questioned whether semi-annual bond payments would continue to be made, although it said the trustee had sufficient funds to pay the $4.3 million of principal and interest.

Trustee UMB Bank did not respond to requests for comment.

"While the entire sector has faced operating pressure from increased labor costs, many operators have innovated to successfully mitigate these pressures," Rebecca Greive, Fitch's lead analyst for Christian Horizons, told The Bond Buyer. "Christian Horizons' weak operating market in generally rural areas with weak wealth indicators and declining demographics combined with unusually large labor needs, due to heavy skilled nursing operations, has exacerbated their struggle."

Greive said staffing shortages, elevated labor costs and increased operating costs "significantly contributed" to the escalating cash burn that drove the nonprofit into bankruptcy.

According to the organization's IRS form 990 for the fiscal year ended June 30, 2023, Christian Horizons' revenue for the fiscal year was $17.928 million. Its expenses were $34.037 million, resulting in a $16.018 million deficit.

The company's assets were basically halved in the fiscal year, going from $32.2 million to $16 million, while liabilities decreased only slightly, resulting in net assets of negative $24.378 million at fiscal yearend.

Christian Horizons President and CEO Kate Bertram did not respond to emails requesting comment.

In the company's 2022 annual report, Bertram wrote, "The largest opportunity we have been afforded is financial stewardship resulting in the strong future viability. ? We will adapt and retool our campuses and programs to meet, and even exceed, the demands of the market."