Bonds

A plan for the owner of a senior living community in Plano, Texas, to emerge from bankruptcy faces a creditor vote this month, a confirmation hearing in April, and opposition from the trustee for nearly $66.8 million of defaulted revenue bonds.

BSPV-Plano, LLC, a Texas limited liability company, filed the Chapter 11 case in the U.S. Eastern District of Texas Bankruptcy Court in March 2022 after Bridgemoor at Plano, its 318-unit rental project, was beset with problems.

Bond trustee The Huntington National Bank said U.S. Judge Brenda Rhoades approved the company’s disclosure statement Feb. 24 despite its opposition and that it expects to file an objection to the plan’s confirmation on or before March 29, according to a notice to bondholders posted Monday on the Municipal Securities Rulemaking Board’s EMMA website. A court hearing on the plan’s confirmation is scheduled for April 13 and 14.

The unrated bonds, which were issued in 2018 through New Hope Cultural Education Facilities Finance Corporation, have been in default since Nov. 15, 2020, due to a failure to make interest and principal payments, the trustee said in previous notices. A default also occurred when $2 million was not deposited into an operations and maintenance reserve fund. 

According to the disclosure statement, Huntington has pegged principal and accrued interest due on the bonds at about $79 million, an amount BSPV-Plano disputes.

The mostly tax-exempt debt consists of $50.52 million of series A bonds due in 2053 with a 7.25% yield, $5 million of series C subordinate bonds due in 2053 with a 10% yield, $4.5 million of series D junior subordinate bonds due in 2053 with a 12% yield, and $6.765 million of taxable series B bonds due in 2031 with an 8% yield.

Under the reorganization plan bondholders and other creditors are voting on this month, the bonds would be paid over seven years at annual interest rates of 5.15% for series A and B bonds, 5% for series C bonds, and 4% for series D bonds, according to the trustee’s notice. 

“The proposed interest rates are below the non-default contract interest rates on each series of bonds,” it said. “The plan will pay interest only on the obligations due under the plan for the first 23 months following its effective date, and then pay amortizing payments in subsequent months based on a 40-year schedule with a balloon payment due at maturity.”

The balloon payment would come from the project’s sale, subject to the bondholders’ liens, or from a refinancing, “in which case the liens would be released as part of full payment in favor of a new lender,” the disclosure statement said.

It noted the value of the property is estimated at $90 million, but could “rapidly rise to upwards of $120 million once stabilization of the property is achieved.”

“This is why the debtor filed the bankruptcy case — to preserve value for all stakeholders and to complete the project — and this is why the debtor urges all creditors to vote to accept the plan,” the disclosure statement said. 

It added that in lieu of bankruptcy, owners of series A and B senior bonds could have forced a liquidation sale of the property at a below-fair market value that would leave series C and D bondholders and other creditors receiving nothing.

Negotiations between PSPV-Plano and the trustee, which commenced last July, failed to reach a settlement.

“The debtor understands that the bond trustee will vigorously oppose the plan,” the disclosure statement said. “Nevertheless, the debtor will be prepared to consider reasonable proposals from the bond trustee regarding the plan and to resume negotiations towards a potential consensual plan.”

The still-unfinished project, which began in January 2019 with completion scheduled for June 2020, was hit with cost overruns due to the COVID-19 pandemic’s impact on supply chains and workforces, and surging inflation, as well as by weather-related delays, according to the disclosure statement.

According to a report filed with EMMA, 49 units were occupied on Feb. 3. The report said the 156 single-level “cottage” units were complete or substantially complete, and the 162 unit apartment “tower” is progressing.

The senior living sector accounted for the biggest share of first-time payment defaults in 2022 after years of high-yield borrowing prior to the pandemic.

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