Turnaround Transaction Deal of the Year for Henry Ford Village

Dykema attorneys experienced in myriad legal disciplines helped one of the largest independent nonprofit continuing care retirement communities, Henry Ford Village, successfully transition to ownership by a for-profit leased facility through a successful bankruptcy sale process and confirmation of a bankruptcy plan.

Team Leads Path From Litigation to Sale of Continuing Care Retirement Community

Class Action Favorably Settled

Prior to the sale, prospective residents in independent living would pay a deposit to reserve a living unit, with a total entrance fee due which varied on the type of unit, and, in addition, pay a monthly fee. Often the entrance fee payment was derived from the sale of the resident’s previous residence. Upon a resident’s departure, a portion of the entrance fee was refundable upon fulfillment of certain conditions.

Following class action litigation filed in 2014 associated with its entrance fee model, Henry Ford Village, Inc., found itself in the midst of several financial constraints in 2020. Even though a favorable class action settlement had been achieved, increased financial constraints coupled with the severe impact of the COVID-19 pandemic made it impossible for the senior care facility to make the $800,000 settlement payment.

Finding Solutions for the Future

Beyond the peril faced by the prepetition creditors, the organization, and its employees, more than 800 residents also became at risk of losing their homes, care, lifestyle, and investment for their heirs. Based on its previous limited representation by the Dykema health care team, as well as the successfully settled case, which built significant respect for the firm, Henry Ford Village asked to meet with Dykema’s Bankruptcy and Restructuring team to explore its options. The Dykema team’s pragmatic approach to examining all potential outcomes and strategic counsel helped the retirement community conclude that an urgent bankruptcy filing and the necessity to hire a financial advisory firm and investment banker was the correct solution.

On the Petition Date, Henry Ford Village owed more than $184M in secured and unsecured debt. The case was filed early in the COVID-19 pandemic, which required the Dykema team to conduct the case as well as a full bankruptcy “363 sale process” entirely remotely. The emergency bankruptcy filing was one of the largest ever for an independently operated; CCRC—as well as one of the largest bankruptcy filings in the State of Michigan in more than a decade. The work ahead would require Dykema’s full suite of experienced attorneys from more than 10 legal disciplines to skillfully and efficiently navigate an extremely tenuous process of restructuring Henry Ford Village and transitioning it from a non-profit to a for-profit enterprise to seek a sale.

Novel Legal and Communications Strategy

Contrary to historic cases of this nature, one of the bigger challenges with the sale was that prospective purchasers were unwilling to assume in full the resident contracts, much less pay in full prepetition former resident claims. To combat this challenge, Dykema developed a novel legal approach and structure providing flexibility for residents that would allow the sale to proceed without the purchaser having to assume in full the resident contracts.

Other significant challenges stemmed from communications due to the nature of the aged population and families, the inability to meet in person with the resident population due to the pandemic, and differences in interests between current residents and prepetition creditors. Dykema and the financial advisory firm, along with the Debtor’s chosen claims noticing agent, worked together to develop extensive formal and informal communication processes, including regular internal facility TV broadcasts, consistent posting of “Q and A” documents, and live manned phone banks operated by the claims noticing agent.

Path From Non-Profit To For-Profit

Despite these challenges, the sale was a success and the residents and creditors strongly supported the sale and the liquidating plan. The sale provided $76.3M in cash, which paid the secured debt of $57M in full and Plan estimated distributions to unsecured creditors of 24 - 40 percent. Significant additional consideration was provided through buyer commitments to current residents which provided a means for maintaining many of the concepts of the non-profit entity despite transitioning to a “for-profit” entity.

In addition to providing a distribution on entrance fees dependent on the length of future stay in the facility, new contracts included commitments of utmost importance to current residents which included maintenance of lifestyle, certain rental fee caps, and, while not continuing as a non-profit entity, the obligation to honor benevolence care arrangements in place by Debtor with respect to any residents receiving as of the sale closing date and to provide for the same free or reduced charge care benefits if needed by the current residents under standards and criteria previously established by Debtor.

In addition, at the time the petition was filed there was a staff of approximately 522 employees (206 full-time and 316 part-time). At the closing of the transaction substantially all employees were offered and accepted positions with the new owner.