Holders of Grace Manor health care facility bonds will be looking to the State of New York Mortgage Agency to make them whole following the nursing home's bankruptcy filing earlier this month.
The Dormitory Authority of the State of New York issued $19.9 million of bonds on behalf of the Buffalo nonprofit in 1996. According to a material event notice posted last week, a single tranche of bonds maturing in 2019 with a principal amount of $9.6 million is outstanding.
The nursing home shuttered its doors on April 1 and filed for Chapter 7 bankruptcy on April 8 in the U.S. Bankruptcy Court for the Western District of New York.
In a Chapter 7 bankruptcy a debtor's assets are liquidated to repay creditors.
The bonds are secured by a SONYMA-insured mortgage on the facility. The agency has been making payments on the mortgage since June 2007 when Grace Manor was unable to do so, triggering an event of default under bond convenants. That year, SONYMA's payments under its insurance policy totaled $2.5 million, according to an audited financial statement.
The agency plans to exercise its option make a lump sum payment plus two months interest to the Dormitory Authority, SONYMA spokesman Phil Lentz said. The lump-sum payment would trigger a requirement that DASNY redeem the bonds at par in two months, Lentz said.
SONYMA spokeswoman Charni Sochet said the lump-sum claim hasn't been submitted by DASNY yet but that it would total approximately $8 million. That, along with a $1 million debt service reserve fund would be enough to pay off the bonds, she said.
DASNY spokesman Marc Violette said that when the authority receives a lump sum from SONYMA "we will take out all the bonds and protect the interest of bondholders."
The bankruptcy trustee, Mark Schlant, directed questions about the SONYMA insurance to DASNY.
"We're investigating the priorities of parties asserting liens and the Dormitory Authority is one of them," Schlant said. "We're trying to work out a way of liquidating the property and at least to a substantial extent what's gained from that will be paid to secured creditors according to their priorities."
The bankruptcy filing lists $5 million of assets and liabilities totalling $8.7 million, less than the outstanding principal of the bonds. The filing lists DASNY as a secured creditor with a $7.1 million claim based on a mortgage on real property and security interest in gross receipts.
Calls to Grace Manor's attorney, Julia Kreher of Hodgson Russ LLP, were not returned on Friday and a security guard reached at the facility said that no staff members were there.
The facility was started as a minority operated nursing home in 1979 by the late Rev. Houston Williams. The 167-bed facility has had financial problems for many years and at its most recent bed census had just 140 residents, said Department of Health spokesman Jeffrey Hammond.
"They had the best of intentions but they had a business plan that just wouldn't allow them to operate," he said. "These chronic fiscal difficulties that extended over many years were just too difficult for them to overcome."
The nonprofit ran a $2 million operating loss in 2007 and a $772,761 loss in 2006, according to audited financial statements. At the end of 2007, Grace Manor had an unrestricted net asset deficiency of $7.7 million.
On March 5, Grace Manor announced that the health department had accepted its plan to shut down, Hammond said. All of its former residents have been moved.
Grace Manor's bonds were trading on the secondary market even after the closure announcement, according to trades reported to the Municipal Securities Rulemaking Board. Most recently a customer bought a block of $15,000 on March 16, yielding 6.292% on a 6.15% coupon.
Moody's Investors Service rates the bonds Aa1 based on the SONYMA insurance. That rating, last updated in 2003, will stay in effect as long as the bonds are outstanding and have the insurance, said analyst Bill Fitzpatrick.