ST LOUIS, Mo., April 15, 2005 (PRIMEZONE) -- The Joint Plan of Reorganization for the National Benevolent Association ("NBA") became effective today, setting the stage for the distribution to creditors of their entire outstanding principal and accrued interest at the accrual rate set forth in the plan. NBA, based in St. Louis, Missouri, was founded in 1887 and filed Chapter 11 in San Antonio, Texas, on February 17, 2004. The NBA is one of largest not-for-profit enterprises to file Chapter 11. Its principal assets consisted of eleven senior care facilities providing independent and assisted living units, as well as some skilled nursing operations. As of the petition date, the NBA also had over $100 million in cash and investments derived from charitable contributions and other sources, as well as operations and assets dedicated to providing specialized services to children, families and the developmentally disabled. The NBA also provided management services to approximately 70 HUD facilities.
The effective date triggers the distribution of the amounts necessary to fund the creditors' recoveries. UMB Bank will coordinate distributions to the fixed rate bondholders. The agent for the bank lenders and/or the NBA will disburse payments to bank debt holders and individual trade creditors. Frank Bramwell with UMB Bank (who was also the Chair of the Unsecured Creditors Committee) confirmed that UMB Bank has received the proceeds and will begin the distribution process to bondholders. As Bramwell stated, "This was an extremely successful case. I can't remember a similar situation where creditors were paid in full, with interest (not to mention fees and expenses)."
According to the Creditors Committee's counsel, Bob Albergotti, a partner with Haynes and Boone in Dallas, "The turning point in the NBA case was when the Court denied the debtors' attempts to further leverage the assets through an unnecessary DIP loan and the creditors, attorneys general and residents prevailed upon the debtors to divest the senior care assets to preserve the charity." The Court denied the debtors' motion to secure $50 million in DIP financing early in the case based primarily on the fact that the Debtors had over $100 million in cash and investments, some part of which they could use for working capital purposes, without putting more debt ahead of the unsecured creditors.
The unsecured creditors were owed roughly $230 million and there was essentially no secured debt. "The debt consisted primarily of tax exempt bonds that were issued to finance the charity's expansion of its mission into the senior care business," said Paul Ricotta, a partner with Mintz, Levin, Cohn, Ferris, Glovsky and Popeo in Boston who represented UMB Bank and served as M&A counsel on the sale of the assets. "Unfortunately, managing senior care assets was not among NBA's core competencies and the resulting cash drain from the senior care assets and other operations, coupled with a stock market decline and a precipitous erosion in the charity's investment returns, put the charity in technical default on the bonds. NBA filed for bankruptcy seeking to restructure or reduce the debt, but the creditors were able to demonstrate that through asset sales and available cash, it was feasible for the creditors to be repaid in full," according to Ricotta.
NBA was in Chapter 11 for roughly fourteen months. The first several months of the case were contentious and included full-scale litigation on the debtors' DIP loan request and on the debtors' proposed modifications to their entrance fee programs at their senior care facilities. Bankruptcy Judge Ronald King, who presided over the Chapter 11 proceedings, appointed his colleague, Bankruptcy Judge Leif Clark, as a mediator to attempt to create a consensus among the debtors, their creditors, the residents at the debtors' facilities and attorneys general representing the interests of the charitable entities located in their states. Ultimately, the debtors were persuaded that a sale of the senior living facilities and certain other assets was appropriate to resolve the case.
In addition to the Creditors Committee and the attorneys general of the States of Texas and Missouri (who were both very active in the case as advocates for the charitable interests), the Court appointed a Residents Committee to represent the interests of the residents at the facilities, many of whom had not only invested a substantial portion of their life savings into the entrance fees for the senior care facilities, but also were charitable contributors to the NBA.
The plan was funded from two primary sources: a $210 million sale of the senior care facilities to Fortress Investment Funds pursuant to Section 363 of the Bankruptcy Code and a portion of the debtors' cash and investments. "The senior care assets were very attractive assets in which we received significant interest, on both a piecemeal and portfolio basis. Ultimately, Fortress submitted the most compelling bid and provided the residents the best solution from an ownership and management perspective," according to Matt Niemann, a managing director with Houlihan Lokey Howard & Zukin in Chicago, who ran the M&A process and served as the Creditors Committee's advisor.
"You can't do any better than par plus accrued - the creditors got paid in full and the charity retained substantial assets to continue their charitable mission," according to Niemann. "This case is a real testament to the collaborative efforts of the interested parties, as well as Judge King and Judge Clark, who forced the parties to stay the course," according to Albergotti.