Bankruptcies and defaults reveal older people ‘still struggling to get back on their feet’

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The probability of default in most U.S. industries rose in the first quarter, but the healthcare sector — including retirement homes — predicts the highest likely default rate, according to a new report from S&P Global Intelligence.

Staffing shortages and pandemic fears have strained the healthcare sector, which was also one of the top industries with bankruptcies so far in 2022. S&P Global Market Intelligence Data To display.

Industry in distress

Reviewing trends in Florida bankruptcy filings, attorney Scott Underwood of Tampa-based Underwood Murray said his firm is definitely seeing more distress in living and elder care — including assisted living. , memory care and some nursing homes – since the start of the pandemic.

“While health care has always been a bit of a volatile industry, it seems like this particular sector has really taken a hit for a while for a variety of reasons, including a big census drop,” Underwood said. McKnight Senior Residence.

Although the nature of the industry is such that it will rebound thanks to a growing elderly population, Underwood said the long-term care industry has a “real cash flow problem.”

Underwood – who has represented operators, landowners and creditors – said operators of retirement and care homes appear to be under more stress than companies in other sectors, as evidenced by the number of facilities that he has seen in receiverships, bankruptcies or contemplated bankruptcies.

“These aren’t unsolved cases, most of them, but they seem to be an area that’s growing,” Underwood said.

A previous Polsinelli-TrBK Distress Index report from law firm Polsinelli noted that organizations focused on senior living, independent and assisted living communities, and skilled nursing facilities accounted for a significant share of filings. balance sheet in the healthcare sector in the fourth quarter of 2021.

Boost effect

Underwood said the majority of seniors’ residences and distressed care communities were operating at the margins or “maybe struggling a bit, but making it work” before the pandemic. The Paycheck Protection Program, supplier relief funds and other stimulus programs, he said, have been “very effective in keeping businesses alive for quite some time.”

“If you had PPP money to pay employees or rent, and landlords or lenders were cooperative at the start of COVID, you could survive even if you didn’t have cash,” Underwood said. “This industry is still struggling to get back on its feet.”

BDO noted in its 2022 Healthcare CFO Surveywhich included long-term care organizations, which many healthcare organizations will continue to struggle to meet their bond obligations due to rising cost of supplies, staffing issues and risk of disruption of the supply chain.

“Short-term security of access to public funds may have actually worsened the financial health of many organizations,” said Steven Shill, national lead for the BDO Center for Healthcare Excellence & Innovation. report.

Default coming soon

The BDO survey of 100 healthcare CFOs, including executives in the long-term care industry, found that 42% of organizations defaulted on bond or loan commitments to course of the last 12 months. And 25% said that even though they hadn’t defaulted yet, they were worried about defaulting next year.

According to the BDO report, long-term/post-acute care and home health organizations had the most difficulty meeting their debt and/or loan commitments over the past year, 50% of between them declaring that they have defaulted on their obligations or on their loan commitments. The report’s authors noted that these sectors have suffered “disproportionate impacts” from the pandemic, with long-term care facilities in particular seeing large numbers of residents leave during the pandemic and not return, compounding providers’ financial hardship. .

According to the S&P report, the healthcare sector posted the highest probability of default, at 4.4%, compared to 3.3% as of December 31. Communication services had the second highest probability of default score at 3.4%, up from 2.1% in Q4 2021.

Staffing shortages and pandemic fears have strained the healthcare sector, which was also one of the top industries with bankruptcies so far in 2022, according to S&P.

Healthcare industries top the list of most vulnerable US industries, with the highest default probability scores in the first quarter. Healthcare institutions were No. 1, with a probability of default score of 9.15% (compared to 6.2% in the fourth quarter of 2021), according to the S&P report.

Open dialog

Underwood said his best advice for any business owner or lender who detects a problem with an operator is to resolve it as soon as possible through open dialogue – and to involve a lawyer if it is. a situation of distress.

“Far too often, businesses call us at a time when they find themselves in such dire straits, or money has been seized from the bank, or cash is so tight [that] they have far [fewer] options that had [had] they contacted us 60 to 90 days earlier,” Underwood said. “Even if they hadn’t taken any formal proceedings, had they considered realistic options sooner, they would have been in a better position if bankruptcy or similar proceedings were required.”

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