After hanging in limbo for four months, former employees of Erickson Retirement Communities heard Wednesday that the company will move to pay $750,000 of the $1.8 million in severance payments they’re owed.

Ex-employees owed less than $10,950 in severance would get everything previously pledged by the company, which has been in Chapter 11 bankruptcy proceedings since October. Those owed more would get only $10,950, several dozen of the former workers were told on a conference call Wednesday afternoon.

“Great news for me,” said Stacey O’Neale, a former auditor who’s owed $6,927, according to court records. “But I feel sorry for all those people who are owed big money.”

Some former senior managers are owed $50,000 or more in severance. But at least the company shows signs of paying some of the money and communicating with its former associates, many of whom could really use it.

The matter is scheduled to come up in U.S. Bankruptcy Court in Dallas today. Checks could be sent at soon as late April, employees were told.

I wrote about these folks a month ago. Erickson pledged severance money when it laid off dozens amid last year's terrible economy. Some were promised extra compensation in exchange for agreeing to work extra weeks to close their departments.

But the company's bankruptcy put everything on hold. Erickson quickly filed a request to pay the severance, but the motion languished. Ex-employees couldn't afford a lawyer and resorted to sending letters to the judge and telling their stories to a snoopy newspaper columnist.

Sharon Kirkley, an Erickson interior-design manager laid off last year, seems philosophical about not getting the full, $28,423 that she's owed.

Continue reading "Ex-Erickson staff may get some, not all severance" »

Posted by Jay Hancock at 6:04 AM | Permalink | Comments (1)
Categories: Erickson Bankruptcy
        

Today's column is about 91 folks who were laid off from Erickson Retirement last year and promised severance payments, vacation-time payments and other money that they never got. The payments got hung up in the bankruptcy process, which is normal. What's not right is that Erickson and its creditors have neglected to press the bankruptcy judge for permission to make the severance payments. More than three months have gone by since the bankruptcy filing, and nobody will even tell these folks what's happening.

They're in tough shape -- without a job and then without even the compensation they were supposed to get for being laid off. They didn't seek publicity. I found their names in court papers and called them up. Most were hesitant about talking on the record. And most of them still have great things to say about Erickson. But, to be blunt, they were screwed by the bankruptcy process. Pressure needs to be put on the company and the other people involved in the bankruptcy to pay them the money.

UPDATE: Thanks to William Brattain for telling his story and allowing himself to be photographed. He doesn't have much to gain by going public; if he files for bankruptcy anything he eventually gets from Erickson will probably go to his creditors. But he said he wanted to talk about it for the sake of others in the same boat.

Posted by Jay Hancock at 7:49 AM | Permalink | Comments (33)
Categories: Erickson Bankruptcy
        

For all posts on Erickson's bankruptcy process, click here. You can also bookmark the link and check back for updates.

Judge Stacey Jernigan has approved Erickson Retirement's requests for additional, temporary protections for new residents at some of its communities, the company says. While the bankruptcy process goes on, Erickson will escrow new residents' entrance fees and give them a money-back guarantee if they move out -- whether or not their unit is resold to a new person. But only during the bankruptcy proceeding, which will last for at least several months in Erickson's case and often drags on for more than a year in others. To get this deal you have to be at an eligible community (See below. The Maryland communities are not eligible).

The guarantee lasts only as long as the bankruptcy process, the company says. If you stay in the community after Erickson corporate emerges from bankruptcy, the rules revert to the way they were before: You don't get your money back unless your community can sell the unit to a new resident for at least what you paid. If the apartment fetches less than what you paid, you get a lesser amount back. These are still and always have been the rules at most Erickson campuses.

Says Erickson spokesman Mel Tansill: "Once Erickson emerges from Chapter 11, this incentive expires and the entrance deposits will be moved from escrow and treated as all other residents' deposits, subject to the terms of the Residence & Care Agreement."

The entrance fees can run up to $600,000. For developing communities that are part of the bankruptcy process, the increased protections are intended to reassure people who might think twice about buying into a Chapter 11 situation.

Continue reading "New protections OKed at some Erickson campuses " »

Posted by Jay Hancock at 12:28 PM | Permalink | Comments (4)
Categories: Erickson Bankruptcy
        

You can read all the posts on Erickson's bankruptcy by clicking here.

Bankruptcy Judge Stacey Jernigan will hear arguments at 9:30 a.m. next Wednesday on Erickson Retirement's plan to increase protections for resident's entrance fees, which the company calls "initial entrance deposits." It basically amounts to a money-back guarantee if you buy an Erickson unit and want to move out later or if the community has financial troubles or goes out of business. Current practice is, you get your money back after the community sells your unit to somebody else.

If I were about to sign for an Erickson unit, I would wait until next week to see if the judge approves the new protections and then ask for the new deal. Below is Erickson's argument. IED is initial entrance deposit. CCRC is continuing care retirement community.

Allowing the residents to have a free look at whether or not the CCRCs are operating effectively while these cases are pending should drastically increase the willingness of potential residents to pay an IED... Equally important to a residents’ peace of mind is the knowledge that should their CCRC close, their IED would be promptly refunded to such resident. Should a Closure Event happen, it is imperative that the residents have access to the IEDs paid upon their residency of the CCRC.

UPDATE: Jon Chesto at the Patriot Ledger in Quincy, reporting on Erickson's Linden Ponds property in Hingham, reports that the new protections would not apply to all Erickson communities.

Mary Helen Lorenz, chairwoman of the Linden Ponds board, said the escrow protections being considered in bankruptcy court would only apply to communities where Erickson landowner subsidiaries filed for bankruptcy along with their parent company. Because the Hingham Campus hasn’t filed for bankruptcy, the deposit refunds at Linden Ponds would continue to be governed by the terms spelled out in the residency contracts.

Posted by Jay Hancock at 3:16 PM | Permalink | Comments (2)
Categories: Erickson Bankruptcy
        

For all the Erickson bankrutpcy commentary on one, easy-to-read blog page, click here.

Naturally people thinking of moving into one of Erickson Retirement's communities have started thinking twice since the the mother, for-profit company -- the one that develops the communities and eventually sells them to a nonprofit corporation -- sought protection under the bankruptcy code. A new filing with the Dallas bankruptcy court documents the plunge in people putting money down for Erickson apartments. It also asks the court for new protections -- beyond the escrow account already approved -- to give customers confidence they can get their money back if they move out of a community. If approved, the request would give new residents greater protections than current residents enjoy -- at least temporarily.

In 2008 Erickson as a whole was taking in more than $30 million a month in entrance fees, which give people the right to move into an Erickson space, according to the filing. (No link. The documents are behind a pay wall on pacer.gov.) Entrance fees run from $100,000 to $600,000 per apartment. This year collections were down to $13.5 million per month up until the bankruptcy filing. That was less than half the usual level as seniors had trouble selling their homes to raise the cash for the entrance cost. This was a big factor in Erickson's financial troubles. Since the Oct. 19 bankruptcy filing Erickson has received only $4.5 million in entrance fees, the filing said.

To try to reverse the drought, first Erickson sought and received the judge's permission to create an escrow account that would wall off new entrance fees from creditors. Now it wants to go further, guaranteeing to new residents they'll get entrance fees back if the community has to close or when they move out or die -- even if the company can't resell the apartments to somebody else. In effect it's a "money-back guarantee" to give prospective residents the choice to move out with a refund if they decide the bankruptcy process has diminished a community's quality.

Continue reading "Erickson seeks protections to reverse deposit fall" »

Posted by Jay Hancock at 6:15 AM | Permalink | Comments (3)
Categories: Erickson Bankruptcy
        

Early this year Erickson Retirement Communities laid off 260 people, many from its corporate headquarters in Catonsville. Now I'm hearing from people who got laid off that their severance payments have gotten hung up in Erickson's bankruptcy filing. When companies seek protection under the bankruptcy code all payments get suspended unless a judge OKs them. Something similar happened at The Sun a year ago; people who had taken buyouts temporarily stopped getting the twice-weekly payment.

Erickson has asked the judge in its case to approve the payments, but as of Wednesday morning he hadn't done so. Says Erickson spokesman Mel Tansill:

We have filed a motion to allow us to resume making severance payments, but we don't have a date for the court making a decision.This is all we wish to say about the matter.

I had asked him how many people were affected, how much money was involved etc.

Posted by Jay Hancock at 6:24 AM | Permalink | Comments (10)
Categories: Erickson Bankruptcy
        

The bankrutpcy proceeding of Erickson Retirement Communities has understandably upset the 23,000 residents of the company's 19 communities and their families. People who live with Erickson at Charlestown, Oak Crest, Riderwood and other places have a substantial investment in the communities in the form of their apartments. When residents die or move out of a community, Erickson has always paid back the "entrance fees" for the apartments, which can run up to $600,000. Residents want to know if the bankruptcy will affect Erickson's ability to do that.

Having reviewed lots of documents and talked to bankruptcy specialists, I believe that Erickson residents will be insulated from the financial trauma at the parent company. Peter Chapman, publisher of Erickson Retirement Bankruptcy News and a longtime bankruptcy watcher, goes further.

“From a customer's perspective, bankruptcy should be a non-event," Chapman told me. "The company's goal is that the bankruptcy doesn't impact the individuals that they are providing service to. They're telling the bankruptcy court: 'If we disrupt our customer base, we're out of business.' I don't think anybody's going to object to that."

What he's saying is that it's in nobody's interest -- not Erickson, not Erickson's creditors, not the guy who's buying Erickson, not the nonprofit corporations that own Erickson's communities -- to abuse residents. It's in everybody's interest to ensure that Erickson as a business continues as normally as possible.

In response to many queries, I'll go over again how Erickson's entrance fees work. They're not as solid as owning title to a house or condo. Erickson residents have no legal property interest in their apartments. Instead, they sign a contract that says the nonprofit community will repay

Continue reading "Erickson residents seem shielded from bankruptcy" »

Posted by Jay Hancock at 6:30 AM | Permalink | Comments (45)
Categories: Erickson Bankruptcy
        

Erickson Retirement's bankruptcy should not affect the creditworthiness of three of its communities, says Fitch Ratings. Fitch maintained existing bond ratings on Charlestown and Oak Crest in metro Baltimore and on Greenspring in Virginia. This should reassure those communities' counterparties, including residents who have paid entrance fees that they hope to get back out when they move or die.

Here's what Fitch says:

Fitch Ratings currently maintains ratings on three continuing care retirement communities (CCRCs)- Charlestown Retirement Community (rated 'A' with a Stable Outlook by Fitch), Oakcrest [sic] Village (rated 'A-' with a Stable Outlook), both in Maryland, and Greenspring Village (rated 'BBB+' with a Stable Outlook) in Virginia - that are managed by Erickson Retirement Communities (ERC).

Fitch believes that the bankruptcy filing of ERC will have no effect on the ratings of these facilities, as all are separate, independent 501(c)(3) organizations, unaffiliated with Erickson. The only financial ties that these organizations have with Erikson are fees they pay as part of cancellable management agreements that they have in place with ERC.

In discussions with the management of the Fitch-rated communities, Fitch

Continue reading "Credit score stable for 3 Erickson communities " »

Posted by Jay Hancock at 11:06 AM | Permalink | Comments (6)
Categories: Erickson Bankruptcy
        

Understandably, the seniors who live in Oak Crest, Riderwood, Charlestown and other Erickson Retirement communities want to know how Erickson's bankruptcy proceeding and impending sale affects them. "Are the residents losing their deposits through the bankruptcy proceedings?," one commenter asked on an earlier Erickson post. I'll try to tell as much as I know. Most of the news is good.

Erickson officials have told my colleagues that the changes won't jeopardize the refundable fees that residents pay when they buy in to a community, which can run up to $400,000. This makes sense. The Erickson communities are set up as non-profit corporations, nominally separate from the for-profit Erickson company that landed in bankruptcy court on Monday. This means that the residence contracts customers have signed can't be canceled by the bankruptcy judge.

But to better-understand the entrance fees, you need to know that they really aren't refundable "deposits" in the sense that money is held in escrow until the resident moves out or dies. They never have been -- bankruptcy or not. The money, once paid in, goes to Erickson corporate purposes. Rather, Erickson agrees in a contract to repay the entrance fee once a resident moves or dies.

Below I reproduce language from a bond prospectus regarding the fees for Sedgebrook, a relatively new Erickson community in Illinois. I understand that this arrangement is typical for Erickson communities. At Sedgebrook, refunding the entrance fee happens ONLY after the apartment is assigned to a new resident and a new entrance fee is paid. That's how the company finances the refunds. And in the fine print, Erickson says it doesn't guarantee that a resident will get back all the money s/he put in. If the company has to cut the price for the new entrance fee below what the former resident paid in, the former resident might not get all the money back. So the

Continue reading "Will Erickson changes wipe out resident refunds? " »

Posted by Jay Hancock at 6:30 AM | Permalink | Comments (30)
Categories: Erickson Bankruptcy
        

UPDATE: For more on the bankruptcy's effect on refundable entrance fees that all Erickson residents pay when they enter a community, see this post: Will Erickson changes wipe out resident refunds?

Erickson Retirement Communities, the Catonsville assisted-living company built from scratch by John Erickson starting in the early 1980s, got slammed by the housing crisis. The company's cash flow comes largely from seniors who sell their homes, turn over the proceeds to Erickson and move into one of its communities. But when housing crashed seniors had trouble selling, and apparently that left Erickson unable to service its debt. The collapse of the credit markets meant it couldn't refinance.

The company said late today that it agreed to sell itself to Redwood Capital Investments, which is controlled by Maryland employee-services magnate Jim Davis (Allegis Group). To make the deal work, they're going to enter bankruptcy court to try to give creditors a haircut, thus reducing the amount of debt Davis might have to assume.

At this hour (7:20 p.m.), we haven't heard much from Erickson officials. But it's important to understand what's not being sold. Erickson-developed communities such as Oak Crest and Charlestown are non-profits that are separate from the for-profit company that is being dealt to Davis. Thus they should be relatively insulated from whatever trauma is affecting Erickson Retirement.

Erickson had already cancelled several developments and laid off some employees. The endgame announced today apparently removes John Erickson and his family from control of the concern he built, which employs 12,000 workers at 19 communities in 11 states. Here is the press release in its entirety:

ERICKSON RETIREMENT COMMUNITIES SIGNS DEFINITIVE AGREEMENT TO SELL COMPANY TO REDWOOD CAPITAL INVESTMENTS

• New owner will strengthen Erickson’s capital position, continue providing high-quality service and care to 23,000 existing community residents
• To pave way for company sale and establish the company for long-term success, Erickson files voluntary Chapter 11 petition to restructure debt and separate core businesses

BALTIMORE, MD (October 19, 2009)—Erickson Retirement Communities, a national manager and developer of continuing care retirement communities, today announced it has signed a definitive agreement with Redwood Capital Investments LLC, an investment company controlled by leading Baltimore businessman Jim Davis, to purchase Erickson.

Continue reading "Erickson Retirement sold, enters bankruptcy court" »

Posted by Jay Hancock at 7:20 PM | Permalink | Comments (31)
Categories: Erickson Bankruptcy