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Carillon Senior Care Development (SCD) welcomes the opportunity to invest in distressed CCRCs, also known as Life Plan Communities, in both the non-profit and for-profit arenas, with the goal of restoring them to operational and fiscal health. In late 2004, a New York-based specialized distressed-debt hedge fund alerted its contacts at SCD that a large controlling interest in bonds used to construct Carillon, a CCRC in Lubbock, Texas, was available for purchase at very advantageous terms. This was due to the failure of Carillon’s non-profit board to pay current interest on the bonds as called for in their loan documents. Carillon also failed to comply with many other covenants with the lenders of the $43,520,000 bond placement originally underwritten in 1999 by Herbert J. Sims & Co. After two weeks spent performing due diligence on Carillon’s competition, reviewing its prior offering plan, and speaking to other professionals in the field, SCD’s special purpose entity vehicle, along with its distressed hedge fund partner, purchased $31,000,000 of the bonds at a significant discount without even the need for a visit to the community. Leveraging its status as majority bondholder, SCD worked with the existing bondholders of Carillon to enhance the value of their collective positions by bringing solid, practical advice to the Carillon board and its underwriter, discussing the project in depth in a series of monthly calls. An SCD team also visited Carillon, and quickly identified the issues that were draining the community financially and causing the residents stress. Taking a pro-active stance, the bondholders helped focus Carillon’s non-profit owner on increasing cash flow by achieving more timely collection of its accounts receivable and helped reshape the CCRC’s marketing plan. The collective effort of all parties enabled Carillon to refinance its entire debt within 20 months from the date it signed a Forbearance Agreement with its lenders, and only 14 months after SCD and its partner became involved. Upon the refinancing of the bonds (which were advanced refunded), SCD and the New York hedge fund were able to close out their position at approximately 112% of par value. |