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Three key considerations for a successful turnaround

Ginny Housum, senior vice president and workout specialist at UMB Bank, was recently recognized by the Turnaround Management Association (TMA) Minnesota for her work as trustee on a successful turnaround that included the stabilization and asset sale of a 90-unit senior care facility in Minnesota, which positioned the facility for long-term financial resiliency, and providing the town where the facility is located with a stable employer providing high quality of care to its vulnerable population.

With more than 25 years of experience and with a focus on municipal bond project financings, including continuing care retirement communities (CCRCs) and other senior housing issues, Ginny has accumulated a wealth of knowledge on how to support distressed debt and a successful turnaround. Below, she shares three key considerations when executing a successful turnaround.

Bring in the right advisors

As a trustee, we work with general receivers and external advisors, including financial advisors and counsel, which allow UMB to partner successfully with all involved parties to execute a turnaround phase and bring financial resolution to the bondholders for whom we work under bond indentures. When working with a general receiver—parties who are responsible for managing the day-to-day operations of properties during a turnaround—it is critical that the trustee intimately understands the receiver’s capabilities. It’s also important that the general receiver is a respected and trusted financial advisor who will have a frequent presence onsite. The receiver needs to be able to prove its capabilities not only to the court which appoints it, but also to potential buyers of the assets.

In the investment banking community, there is a wide range in quality of service, so having knowledge of your general receiver’s abilities allows you to focus on the best ways to support them in managing a property and positioning it properly for a turnaround. This can include remaining involved in the receiver’s operational decisions—such as hiring and management decisions—or even appointing additional financial advisors to guide the turnaround.

Take a long-term approach

It’s important to remember that turnarounds and default workouts don’t happen instantly. While financial recovery is the end goal, not every decision from the beginning of a turnaround should be made solely to cut expenses. Investors, trustees, general receivers and other advisors need to have perspective and see the long-term vision.  Should a senior housing facility fall into disrepair or endure a decline in the quality of its care or service, it will experience resident attrition in residency, which will reduce the recovery on a sale of the facility. Of course, the trustee needs to balance the operational needs of the facility with the potential recovery and ensure that the “burn rate” is controlled.

As trustee, you cannot let the next scheduled bond payment dictate your actions or advice to the general receiver. As a representative of bondholder interests, trustees must instead convey the importance of turning a troubled investment into one with a healthy long-term outlook—not just one that will meet its next payment.

When looking specifically at turnarounds for senior housing and senior care facilities, there are crucial actions needed to turn a property into a financially resilient long-term investment. For example, if a facility is deferring maintenance on its property in order to make debt service payments, it’s not setting itself up for long-term success; the short-term bond obligations are being met while putting the property, its residents and bondholders at greater risk in the future.

Be proactive throughout the process

A successful turnaround requires advisors who are willing to make decisions and won’t play a passive role. This applies to the trustee, as well.

As a trustee with more than 75 years of experience, UMB has distinguished itself as a proactive, communicative advisor. We have found that successful turnarounds always require a trustee that communicates often and clearly to bondholders and other advisors to navigate properties to financial recovery.

Even the most experienced general receivers rely on assistance from trustees to ensure their operational decisions are in the best interests of both the property and its investors. Trustees should be closely involved in operational and financial assessments to identify a path toward stabilization. Through a strong trustee-general receiver partnership, properties can accomplish this while bolstering the asset value for a successful sale—providing financial resolution for bondholders.

 

The UMB Distressed Debt team works to meet the broad needs of borrowers and bondholders, navigates trouble spots as they occur, and helps protect bondholder value. Learn how we can support your firm’s  default and workout needs, or contact us to be connected with a distressed debt workout specialist.

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