Bankruptcy hits assisted living developer that raised money through brokers

A private equity firm that developed senior housing, Inspired Healthcare Capital, this month filed for Chapter 11 bankruptcy, leaving investors who bought the firm’s private placements in the lurch and broker-dealers that sold the securities potentially facing costly litigation. 

Inspired Healthcare Capital, based in Scottsdale, Ariz., appears to be a sprawling network of related companies, with 161 related debtors and affiliates, according to its bankruptcy filing from February 2 in federal court in the Northern District of Texas.

The filing listed estimated liabilities of $1 billion to $10 billion and between 10,000 and 25,000 creditors.

Inspired Healthcare Capital sold more than a dozen private placements and alternative investments to raise capital through a network of independent contractor broker-dealers. One broker-dealer was Emerson Equity, the lead seller of private bonds issued by GWG Holdings, which went bankrupt in 2022 after defaulting on more than $1 billion in so-called L bonds.

“This looks like the next GWG,” said Adam Gana, a plaintiff’s attorney who is representing at least a dozen investors in Inspired Healthcare’s various deals and products. “It was focused on senior living and assisted living.”

“What went wrong,” he asked. “We’re working that out, but the number one issue for many of these types of business is how sensitive they are to cash flow. That means Covid, along with excessive leverage, and rising labor costs makes it tougher to run these kinds of businesses.”

A spokesperson for Inspired Healthcare on Tuesday afternoon did not respond to a message to comment about the bankruptcy.

Commissions and management fees historically have been high for such private investment vehicles, making it more difficult for a fund to overcome any unexpected bumps in the road. While such private investments can appear stable to clients, often listing a value that does not change from year to year on a client’s account statement, they prove extremely volatile, particularly in times of changing interest rates.

Inspired Healthcare’s bankruptcy “is designed to protect its focus on resident care and to preserve and maximize value for all stakeholders through exploration of all strategic alternatives, including potentially deleveraging its balance sheet, facilitating a formal marketing and sale process, and implementing a comprehensive restructuring transaction,” according to a statement from the company.

“Throughout this process, the company will continue working closely with its residents, vendors, secured creditors, and investors, and it does not expect any operational impact from this chapter 11 process on any operating senior community,” according to the statement.

The company also appointed M. Benjamin Jones, Ankura Consulting Group, to serve as chief restructuring officer and manage the business through the Chapter 11 process, along with the current leadership team.