ANALYSIS: Municipal bond defaults signal distress for seniors

Overwhelmed by the Covid-19 pandemic, the retirement home industry is now facing the challenges of declining occupancy, the end of emergency government support measures, staff shortages and rising costs. costs. These challenges are similar to those I have explored recently with respect to nursing homes.

A January report from Municipal Market Analytics (MMA) found that in 2021, first-time municipal bond defaults for borrowers associated with senior living facilities hit an all-time high. These accounted for just over half of first-time municipal bond defaults.

Seniors frequently access financing through tax-exempt municipal bonds. In these transactions, a municipal entity issues bonds and then lends the proceeds to an aging borrower. Bond documents generally give the conventional trustee rights against the borrower under the issuer’s loan.

Attorneys for senior borrowers, their respective trustees, and other major creditors will want to familiarize themselves with the underlying bond documents, explore potential avenues of municipal bond default, and research possible legal issues. Some trustees and borrowers may enter into forbearance agreements, particularly if the borrower’s long-term prospects are strong and they have the ability to survive a temporary cash flow crisis.

Alternatively, the trustee may compel a borrower into a court-supervised receivership, possibly for the purpose of effecting a sale of business. In these situations, a borrower can file for bankruptcy in order to regain control from the receiver.

In another scenario, borrowers could work with the trustee on a restructuring support agreement for a pre-packaged Chapter 11 plan, especially if there are no significant issues with other creditors. Finally, there may be situations where a traditional Chapter 11 case is the best alternative.

Resources for understanding Chapter 11 are available in our Practical advice: Voluntary Chapter 11 following. Monitor the progress of bankruptcy cases with Bloomberg Law Folders.

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