BRADENTON, Fla. — Golf, senior citizens, and Florida: what could go wrong?
Yet in St. Augustine, Fla., amid what is billed as the "ultimate golf destination" with championship courses and the Golf Hall of Fame, a golf-linked continuing care retirement community has fallen on hard times.
Glenmoor, a CCRC on 40 acres in World Golf Village near the state's northeastern coast, calls itself a resort retirement community providing "worry-free retirement living to seniors from all areas of the country."
The facility's owner, Life Care St. Johns Inc., filed for reorganization under Chapter 11 of the Bankruptcy Code on July 2 owing municipal bondholders more than $57.1 million.
Another $7.8 million in refunds is owed to residents who died or moved out, and signed contracts that provided reimbursement of their deposits.
Glenmoor, which consists of 144 independent living units, 15 assisted living suites, and 30 licensed nursing beds, currently has about 247 residents, according to court documents.
Bruce Jones, chief executive officer for Life Care St. John's, told investors in a conference call Sept. 13 that Glenmoor was placed into bankruptcy to head off being placed into receivership by the Florida Office of Insurance Regulation after unsuccessfully negotiating a plan to deal with the financial problems with bondholders and the state.
"We anticipate better protection for our members under Chapter 11. We continue to negotiate with the bondholders," said Jones, who made the comments as CEO for Life Care Ponte Vedra Inc.
Life Care Ponte Vedra operates Vicar's Landing CCRC about 25 miles north of Glenmoor, according to the Florida Division of Corporations.
Life Care Ponte Vedra, a separate corporation, is not involved in Glenmoor's bankruptcy and is current on its $19 million of bonds sold in 2007, according to filings on the Municipal Services Rulemaking Board's EMMA filing system. Ponte Vedra is preparing to borrow $16 million for renovations at Vicar's Landing.
Jones told investors in Vicar's Landing that "a series of economic events" led to the bankruptcy filing at Glenmoor.
While he was not specific in the conference call about what events led to Glenmoor's problems there are clues in Life Care St. Johns' audit ending Dec. 31, 2012, which expressed "substantial doubt" about its ability to continue as a going concern.
The audit said recent economic conditions, especially those impacting the real estate sector, affected the company's ability to market and resell units at Glenmoor.
"In turn, this has caused the company to fall below cash flow requirements, operating projections, and debt covenant requirements," the audit said. The company ceased funding the required monthly transfers under the agreement with bondholders effective Jan. 15, leading to a default on the loan and indenture and subsequent bankruptcy filing.
When CCRCs in Florida are unable to meet the financial requirements of the state they are typically placed in "runoff," and the Florida Office of Insurance Regulation prevents them from accepting new residents and winds down operation of the facility.
Four CCRCs are currently in runoff. Glenmoor is not among them because its operators filed for bankruptcy.
There are 70 CCRCs with certificates of authority to operate in the state, according to Insurance Regulation statistics. The data indicate that the number of existing and planned CCRC units outstrips demand.
The number of residents in such facilities has mostly declined annually since the peak number of 25,764 residents in CCRCs in 2005, while the number of available units has increased.
Last year, 24,128 residents were in CCRCs across Florida, while 3,503 units were for sale. Hundreds more units are planned to come on line at a future date, according to state insurance regulators.
According to Fitch Ratings, economic pressures on CCRCs still remain though median ratios on the facilities are stabilizing across the country.
Stabilizing median ratios for the investment-grade borrowers rated by Fitch supported an outlook change in the CCRC sector to stable from negative last year, the rating agency said in a special report Monday.
Since 2008, management teams at the facilities used tight expense controls, creative marketing plans, and skilled nursing to maintain financial performance and occupancy "in the face of an improving yet still challenging operating environment," said Fitch analyst Emily Wadhwani.
"The slow recovery in the national economy and uneven improvement in the U.S. housing market continued to hamper the financial improvement of the sector," she said. "While some signs of economic improvement include lower unemployment rates, very modest job growth, stabilization in home values, and declining mortgage delinquency rates, rating improvement within the sector will remain limited over the near term."
Longer term demographic trends underpin the credit strength of the sector with the growth in elderly population resulting in solid demand.
"As many communities struggled with soft occupancy, pressure on Medicare and Medicaid reimbursement, and other industry challenges, Fitch believes that management's focus on maintaining expense levels and undertaking aggressive marketing strategies were key contributors to steady profitability levels in fiscal 2012," Wadhwani said. "While the improvement in U.S. housing market is positive for the sector, greater economic growth with a growth in real wages and reduction in unemployment are key to return to pre-recession performance."
Through Aug. 28, Fitch said its rated CCRCs across the country this year saw five rating downgrades, two upgrades, and 36 rating affirmations. The most frequent driver of negative rating action was challenged occupancy rates.
Fitch currently rates 91 CCRCs in its portfolio, including 11 below investment-grade credits.
In August, Fitch affirmed its BBB rating on Life Care Ponte Vedra, and changed the outlook to stable from positive reflecting plans to borrow about $16 million from a bank for renovations at the 24-acre Vicar's Landing, which is about 20 miles southeast of Jacksonville.
In a review of Ponte Vedra's credit, Fitch analyst Michael Burger said Vicar's maintains a good financial profile and has strong occupancy demand. He also said that Life Care St. Johns bankruptcy filing for Glenmoor "is not expected to have a financial impact on Vicar's."
Burger also noted that Vicar's Landing and Glenmoor have common management. The two CCRCs are managed by Life Care Pastoral Services, whose registered agent is Bruce Jones, according to Florida corporation records.
Vicar's is expected to file a claim in the bankruptcy case for $8.8 million in loans that were made to Glenmoor in the past. The loan "will likely not be paid," Fitch said.
Despite sharing common management, Bruce Jones told Vicar's investors in the Sept. 13 conference call that Glenmoor and Vicar's are operated separately but he hoped that Life Care Pastoral Services would continue to manage Glenmoor.
As for the bankruptcy case, Jones said that consultants have been hired to evaluate the best options for Glenmoor going forward, including whether the facility should be sold or its finances restructured.
Glenmoor's unrated bonds were sold on behalf of its corporate owner by the St. John's County Industrial Development Authority.