South Franklin Circle makes pre-packaged Chapter 11 bankruptcy filing

By Caroline Salls

Pittsburgh, Oct. 25 - South Franklin Circle made a pre-packaged Chapter 11 bankruptcy filing Wednesday in the U.S. Bankruptcy Court for the Northern District of Ohio.

According to documents filed with the court, South Franklin's pre-packaged plan of reorganization is based on a restructuring agreement with Hamlin Capital Management, LLC.

South Franklin Circle president and chief executive officer Cynthia H. Dunn said in a statement filed with the court that the company filed for bankruptcy to implement the restructuring agreement because its pre-bankruptcy secured lenders did not unanimously support the terms of the deal.

Dunn said the plan is supported by the requisite majority of pre-bankruptcy secured lenders.

Restructuring terms

To implement the balance sheet restructuring, the company will replace its current $100.6 million of secured debt with $66.75 million in new bond and term note secured debt. Of that amount, $17.75 million will be subordinated long-term debt.

The company said it may also borrow up to $550,000 for working capital purposes under the agreement with Hamlin, if necessary.

South Franklin said its senior secured debt will be reduced by more than 50% and its total secured debt by about 40% under the proposed restructuring.

Creditor treatment

Treatment of creditors will include the following:

• Pre-bankruptcy secured lenders will receive a combination of cash and new term note debt in exchange for cancellation and discharge of their claims.

The company said the cash will come from the net proceeds of $41 million in new bonds to be issued by the County of Geauga, Ohio. Those bonds will be held by bondholder investors who are accredited investors and/or qualified institutional buyers for which Hamlin serves as investment adviser;

• Non-tax priority claims and general unsecured claims will be reinstated and paid in the ordinary course of business;

• Other secured claims will be reinstated; and

• Judson Services, Inc. will retain all membership interests in reorganized South Franklin Circle, which will continue to exist as a nonprofit entity.

DIP financing

In conjunction with the bankruptcy filing, the company requested court approval to obtain up to $1 million in debtor-in-possession financing from Judson.

The DIP loan will mature on March 31, 2013 and will not accrue interest.

According to the financing motion, the pre-bankruptcy secured lenders are required to commit that any funding of DIP loans not repaid to Judson will be a credit against any 2013 obligations of Judson under an old credit support agreement.

Debt details

As of Dec. 31, 2011, South Franklin Circle had $167.2 million in assets and $166.3 million in debt.

The company did not list any unsecured creditors with claims of $1 million or more.

A hearing on the company's first-day motions, including interim DIP financing and plan hearing scheduling, is scheduled for Oct. 26.

The company is represented by McDonald Hopkins LLC.

South Franklin Circle is a Chagrin Falls, Ohio-based nonprofit continuing care retirement community. The Chapter 11 case number is 12-17804.

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