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COVID-19 & RETIREMENT HOUSING BOND DEFAULTS

Retirement and congregate care facilities have always been the source of the largest numbers of municipal bond defaults. However, the defaults have been due to poor management, excessive interest burden or outright fraudulent actions by the operators. The Covid-19 pandemic has added an entirely new operating risk, one that may prove to be long lasting. The vulnerability of such facilities to become hotbeds for disease has made a significant number of people reconsider going into such facilities rather than seeking care in their own homes. Let’s look at the numbers.

In the last six years the number and dollar amount for nursing and retirement homes that have missed scheduled debt payments to the trustee or interest payments to bondholders have been as follows:

YEAR             #                     $ (000)

2017               14                   $828,069

2018              10                   $525,228

2019              11                    $540,962

2020              39                   $205,313

2021YTD      21                   $438,183

What is evident from these numbers is that the default rate literally exploded in 2020 and is running at twice the 2020 rate in 2021. What is also evident is that hardest hit by the pandemic are smaller facilities in the $5 to $20 million size versus the $50 million size in 2017-19 period.

This crisis for the industry comes at a time when the number of people that will be needing such facilities is just beginning as the baby-boomer generation reach their 70s. Current facilities were built for the WWII generation, as generation that was smaller and widowed or widower. In addition, the life expectancy of the baby-boomers is significantly longer than their parents with access to medical care that came too late for their parents’ generation.

While government has responsibility for veterans, the rest of the boomers are on their own when it comes to finding housing. There is likely to be a crisis in this regard not only in terms of retirement facilities, but also, in finding and educating care-givers for literally tens of millions. Perhaps this will become the new employment opportunity for the immigrant workers flooding into the country.  

We note in the $2.3 trillion infrastructure bill there is $400 billion earmarked as for home and community based care for the disabled and elderly. We hope this includes funds to be used to salvage the current retirement facilities as well as encouraging the construction of new ones through more generous reimbursements. In any case, the crisis ahead is clear. Let’s solve it before it turns into a China like problem with China like solutions.

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