Senior Living and Care Leads Record-Breaking Distress in Health Care Sector Bankruptcy Filings
American Bankruptcy Institute (“ABI”) reports, in ABI’s 8/15/24 e-newsletter, that distress levels in health care, as measured by the number of bankruptcy filings, had another record-breaking quarter, led by the senior living and care sector, according to the latest Polsinelli-TrBK Distress Indices Report, McKnight’s Senior Living reported. The Health Care Index reached the highest level of distress in the report’s history for the fifth consecutive quarter, according to the Second Quarter 2024 Chapter 11, Healthcare and Real Estate Distress Indices report. Data show that the current level of chapter 11 filings is almost 50% higher than health care distress at the height of the Great Recession in 2008-2009. Real estate distress also reached its highest level in 11 years. “We are continuing to see significant turmoil across various sectors and are now really starting to see data similar to the Great Recession or higher,” said Jeremy R. Johnson, a restructuring attorney at Polsinelli and co-author of the report. “We are seeing unprecedented levels of distress across the board, and there are no signs that it is slowing down.” For senior living and care settings — independent living, assisted living, memory care, continuing care retirement communities (CCRCs) and nursing and skilled nursing facilities — chapter 11 bankruptcy filings have comprised approximately half of the distress in the health care data set for the past several years, Johnson told McKnight’s Senior Living. The problems in the senior living and care industry, he said, are extensive, particularly in CCRCs. Those large communities did not all recover from the COVID-19 pandemic, Johnson said. The biggest problems involve debt, with bond facilities outsized in comparison with the value and the cash flow generated by the underlying industry, as well as labor costs that are 30% to 40% higher than projected. Companies expanding too fast are at the heart of the problem in long-term care, Johnson said. The Distress Indices Report, he explained, is a snapshot of distress based on bankruptcy filings for the past four quarters, which are converted into a distress number. The past four quarters have shown high distress numbers, particularly for health care. And although Johnson doesn’t expect the number to remain at that high, he also said it is not going to go down substantially.