Clare Oaks’ bondholders have presented a Plan of Reorganization that, unless approved by 95% of Clare Oaks’ residents, will eliminate their contractually guaranteed entrance-fee refunds; turn the residents into renters of their own homes; and shutter the CCRC’s highly rated skilled nursing care area with 120 beds. This last possibility led the Centers for Medicare & Medicaid Services (CMS) to file an objection to the bondholders’ plan in the U.S. Bankruptcy Court for the Northern District of Illinois, Eastern Division.
“I think this possible action is outrageous at any time, but especially during the global pandemic of COVID-19, which has hit the senior population so hard. It’s shocking that bondholders, out of pure financial self-interest, would be willing to take these unprecedented measures in Illinois against senior citizens who entered into contracts that guarantee their homes and future healthcare for the rest of their lives,” said Pappas.
These comments refer to outcomes stated in the bondholders’ plan filed by Lapis Advisors and Amundi Pioneer, investment firms that acquire distressed assets. The residents stand to lose entrance-fee refunds ranging from $109,350 to $299,433, which were guaranteed when they moved into independent living residences.
“These seniors are the innocent bystanders,” said Pappas. “They are people who have put their life savings into securing a place to live, to ensure their future healthcare as they age in a community where they can maintain socialization with other seniors and avoid becoming a burden on their family and society. They entered into contracts with certain expectations, and due to the actions of other parties their contracts are being put in jeopardy—out of plain greed. For those commitments to be wiped out due to bondholders’ unreasonable financial considerations is immoral and unjust.”
Contractual agreements with CCRC residents have long been upheld by courts in Illinois and throughout the country, not least because this older population is at high risk. In addition, there are ways to arrive at a mutually beneficial conclusion between creditors and investors in these cases: such conclusions have been achieved in more than a half-dozen cases where Illinois CCRCs have emerged from Chapter 11—with residents’ rights protected—in recent years.
“Sophisticated investors such as these bondholders should have a level of expectation and should understand the nature of these properties,” added Pappas. “They should realize that the residents are not corporate entities that can easily recover from this kind of life-altering financial setback. When you invest in property that deals with the most vulnerable among us, you have to know that there are certain actions you just should not take.”
Lawmakers also are concerned that the investors’ plan, if allowed to proceed, could usher in a slew of filings aimed at many of the more than 600,000 senior citizens living in approximately 2,000 CCRCs across the country.
“My greatest concern is of course for my constituents,” said Pappas. “But just as important, a ruling in favor of these bondholders could set a precedent across the country. Especially now, we cannot allow residents in other senior living communities around the nation to be put in this position. We need to send a strong message that this kind of action, and this outrageous lack of compassion and civility, will not stand.”