Putting profit above promises, bondholders for not-for-profit retirement community Clare Oaks would terminate contracts, wipe out seniors' savings

BARTLETT, Ill., June 11, 2020 /PRNewswire/ -- On June 16, 2020, in an effort to protect financial and continuing-care guarantees to its residents, Clare Oaks, a senior living community near Chicago, will formally oppose a reorganization plan proposed by its bondholders. The virtual hearing will take place before the U.S. Bankruptcy Court for the Northern District of Illinois, Eastern Division, at which time the Court also will consider a competing plan from the Clare Oaks Creditors Committee filed on June 5, 2020.

Clare Oaks, a not-for-profit continuing care retirement community (CCRC), seeks to honor its contractual obligations to its residents, whose average age is 87. The residents stand to lose refunds ranging from $109,350 to $299,433, which were guaranteed when they moved into independent living residences, and which represent a significant portion of their life savings for many of these older adults.

The bondholders are West Coast private equity firm Lapis Advisors, LP, which focuses on distressed assets, and Boston-based Amundi Pioneer Asset Management, Inc. Their plan raises the prospect that most of the 225 Clare Oaks residents would be stripped of their savings and could be forced out of their homes during a global pandemic.

In addition, the bondholders' plan would remove the guarantee of continuing care?a pledge included in residents' independent living contracts and enshrined in judicial precedent?likely forcing some of them onto Medicaid. Clare Oaks is among the most respected CCRCs in Illinois, rated at the highest level with five stars by the Centers for Medicare and Medicaid Services and ranked by U.S. News & World Report in the top 12 percent of short-term stay rehab and skilled nursing care communities nationwide.

Clare Oaks maintains that the bondholders' plan elevates their own financial gain at the expense of older adults by terminating the contractual agreement to refund 90 percent of entrance fees. This agreement is typical of CCRCs. The bondholders' position is contrary to decades of judicial precedent, which hold that such agreements are sacrosanct.

In essence, the bondholders?in an attempt to protect themselves from losses incurred by their own investment strategies?have proposed a plan that would steal from the senior citizens who invested their life savings to avoid burdening their children and society when they needed future care.

How entrance-fees work
When independent living residents move into a CCRC, they pay a one-time entrance fee and receive the contractual promise that a significant portion of that fee (usually 90 percent) will be refunded when they leave the community. Until then, the CCRC uses the entrance fees to pay other resident refunds, bond debt, capital improvement and some operating expenses.

The need for financial restructuring
In December 2012, bondholders burdened Clare Oaks with bond debt of $89 million, a sum wildly out of step with market expectations. In 2018, Clare Oaks initiated attempts to discuss solutions prior to filing for bankruptcy, but bondholders chose not to restructure the agreement. This unwillingness to explore options led to Clare Oaks declaring bankruptcy in 2019.

Clare Oaks has not mismanaged any funds and, by instituting important but responsible cost-cutting measures, has been able to meet all obligations, including debt payments and entrance-fee refunds from December 2012 to April 10, 2019, relying solely on cash from operations.

National implications for seniors
If the bondholders obtain approval of their plan, it will open the door for other investors to abandon the rights of older adults?a possibility that would devastate the security of more than 600,000 older adults who are living in nearly 2,000 CCRCs in the United States.

FYI
Learn more and how to register to listen via telephone to the June 16 Court hearing at https://www.dropbox.com/sh/xy70jwea9cshz0u/AAAmxFw4HMvMpG7ZkPv-v_kXa?dl=0

SOURCE Clare Oaks