Ask the legal expert: What are the top legal ramifications for loan workouts and defaults for seniors care providers?
Attorney John Durso, Ungaretti & Harris LLP
The adverse impact on operations might also prevent providers from meeting all their obligations under agreements with bondholders or banks. Violations of operating covenants are becoming more common.Bondholders and banks view violations of these operating covenants as an early warning of more serious problems ahead. These people will certainly want assurances that management is proactively working to address deficiencies in operations.
When a covenant is missed, the financing agreement must be reviewed carefully to determine the consequences. In some cases, noncompliance does not mean a default, so long as the provider retains a consultant to review operations and the provider's board of directors and management follow the recommendations of the consultant to the extent feasible.If failure to meet an operating covenant results in a default, the provider will seek a waiver. In return, new operating covenants may be negotiated but with less latitude for management if future violations occur.