Veria Lifestyle - Chapter 11 Case Summary
Veria Lifestyle has filed for Chapter 11 to reorganize while continuing to operate its YO1 Longevity & Health Resorts property in the Catskills. It cites a roughly 18-month pandemic closure, lenders' failure to fully fund their loan commitments, years of failed refinancing efforts and a $73.05 million foreclosure judgment, and is seeking up to $1.75 million in DIP financing from its indirect parent.
Business Description
Veria Lifestyle Inc. ("Veria" or the "Debtor") operates a health and wellness business centered on destination resort services, including lodging, food and beverage offerings, spa and wellness programming, guest services and related operations, under the name YO1 Longevity & Health Resorts ("YO1"). YO1 occupies a single site in the Catskills Mountains in Monticello, New York, and is Veria's sole source of revenue.
Corporate History
Veria arranged a building loan facility with Canara Bank in June 2016 to fund construction of a project comprising a hotel, wellness facilities and related site improvements such as roads, parking, and water, sewer and utility connections. YO1 was commercially launched around October 2019. Before the pandemic, the resort employed approximately 130 direct employees and 1,670 indirect workers on a full- or part-time basis.
Veria is 100% owned by Veria Lifestyle Capital LLC ("VLC LLC"), which is itself 100% owned by Natural Wellness UK Limited ("UK Parent").
Prepetition Obligations
The 2016 Building Loan
On or about June 22, 2016, Canara Bank ("Canara") and Veria executed a Building Loan Agreement making available to Veria loans not exceeding $45 million (the "Building Loan") for construction of the resort project. Canara made available up to $25 million, leaving the remaining $20 million to be provided by other lenders joining the agreement. On or about September 19, 2016, Union Bank of India (UK) Limited ("Union Bank") became a party to the Building Loan Agreement under a Novation Agreement among Union Bank, Veria and Canara, and made available Building Loans up to $12.5 million (Union Bank and Canara, collectively, the "Banks").
Collateral and Perfection
Veria's obligations are secured by a Building Loan Mortgage, Security Agreement and Fixture Filing dated as of June 22, 2016 and recorded with the Sullivan County Clerk's Office on June 24, 2016 (the "Mortgage"), encumbering Veria's real property in Sullivan County (the "Premises") together with all fixtures located on or attached to the Premises, in favor of Canara in its capacity as Security Agent, and securing a principal sum of $45 million. A security agreement granted Union Bank a security interest in Veria's then-existing and subsequently acquired personal property, including accounts, cash proceeds, chattel paper, commercial tort claims, deposit accounts, documents, electronic chattel paper, equipment, fixtures, general intangibles, goods, instruments, inventory, investment property, letter of credit rights, noncash proceeds and payment intangibles. Veria's obligations are reflected in a Uniform Commercial Code financing statement naming Veria as debtor and Canara as secured party, filed with the Delaware Secretary of State on October 28, 2021, and in a financing statement filed with the New York Secretary of State the same day.
Guarantees
Veria's obligations under the Building Loan Agreement are guaranteed by three parties, each under a guaranty dated as of June 22, 2016:
Chandra Guaranty — a guaranty by Subash Chundara, whom the Declaration also refers to as "Chandra."
VLC LLC Guaranty — a Corporate Guaranty by VLC LLC in favor of Canara as Facility Agent.
UK Parent Guaranty — a Corporate Guaranty by UK Parent in favor of Canara as Facility Agent.
Adjudicated Amount of the Bank Debt
On or about March 27, 2024, the referee in the commercial foreclosure action pending against Veria in the Supreme Court of the State of New York, Sullivan County (the "Foreclosure Action"), issued a report determining that Veria owed the Banks $62,114,568 in principal, interest, fees and expenses. On or about August 24, 2026, the court in the Foreclosure Action entered an order confirming the referee's report and entered judgment in the amount of $73,051,440.
Other Prepetition Obligations
Unpaid Wages — approximately $60,000 of accrued and unpaid wages, substantially all of which comes due within the first fourteen days of the case. Veria notes that further amounts may emerge from discrepancies between amounts paid and amounts employees believe should have been paid.
Paid time off — approximately $24,832.
Reimbursable Expenses — approximately $2,000 owed to employees in the aggregate.
Sales and use taxes — approximately $11,025 incurred or collected and not yet remitted, all of which becomes payable during the first 21 days following the Petition Date. Veria states that occupancy taxes have been collected and will be paid quarterly.
Items estimated at zero — Veria estimates no amounts outstanding on account of withholding obligations, employee benefits programs, workers' compensation fees or liabilities, insurance premiums, or deductibles and self-insured retentions, and believes it is current on insurance brokerage fees. It also states that no employee holds a priority claim exceeding the statutory cap.
Events Leading to Bankruptcy
A Launch Into the Pandemic
The Declaration attributes YO1's trajectory to the timing of its opening: hospitality was among the sectors hardest hit by the global pandemic, and the resort was required to close for approximately 18 months. Even after it reopened, Veria states that the impact was felt for several months because cautious guests remained wary of the physical touch essential to wellness and ayurveda treatments.
Undisbursed Commitments and Substitute Borrowing
Neither Union Bank nor Canara disbursed the full portion of its committed amounts, which the Declaration describes as contributing to a further liquidity crunch. YO1 management expended continuous time and effort procuring funds to keep the resort operating and to prevent deterioration of the Premises, and some deterioration occurred nonetheless as repairs and maintenance were delayed for lack of funds. Veria states that the debt burden from the other sources of funding it was required to obtain now exceeds the total amount of debt owed to the Banks, and that continuous demands by the Banks in the form of interest, fees and penalties have rendered funding YO1's operations infeasible. Veria also states that it lacks funding for marketing and promotional efforts to attract customers to YO1 or to implement changes sought by existing customers.
The Foreclosure Action and Failed Refinancing
On or about January 26, 2022, Canara commenced the Foreclosure Action, styled Canara Bank and Union Bank of India (UK) Limited v. Veria Lifestyle Inc. et al., to enforce the note and foreclose on the Mortgage. That litigation is ongoing.
For over three years before the Petition Date, Veria sought refinancing and received limited interest. Four potential investors or lenders were given access to a data room, and Veria entered into a term sheet with a single lender, which did not ripen into a loan agreement. Veria concluded that a Chapter 11 proceeding was its only viable option to reorganize its business and debts and begin to properly serve its customer base, and states that reorganization would also provide increased livelihood to the local community through sustainable job creation.
Chapter 11 Filing
Veria filed with an insider-funded debtor-in-possession facility and a request to use cash collateral, and states that access to both is necessary to preserve the going concern value of the estate while it operates YO1 through the case.
The DIP Facility
Veria seeks interim and final approval of post-petition financing from a DIP lender (the "DIP Lender") that is an insider, identified as the parent of Veria's 100% equity owner.
Size: up to $1.75 million of aggregate principal, with up to $700,000 on an interim basis, the amount the budget reflects as required pending a final hearing.
Rate: 12% interest, with no fees or expenses charged in connection with the loan.
Maturity: one year after the date of a final order approving the DIP Finance Motion.
Covenants: the facility contains no representations or warranties; Veria describes it in one passage as containing no financial covenants and in another as containing no significant financial covenants.
Liens: liens on all property of the estate, subject only to valid liens that existed as of the Petition Date and replacement liens relating thereto.
Priority: superpriority claims with priority over all administrative expenses other than the Carve-Out.
Veria states that the DIP Lender is taking a junior lien position that it does not believe another lender would accept on comparable terms, that the 12% rate is far below what available lenders would charge, and that it was unable to obtain alternative postpetition proposals on an administrative-expense, unsecured or junior-lien basis. It also states that any third-party funding source would require meaningful due diligence while the DIP Lender is ready to close immediately, and characterizes the insider lender's participation as reflecting faith in a successful reorganization.
Cash Collateral and Adequate Protection
Veria also seeks authority to use cash collateral, without which it states it would be unable to pay the ongoing costs of running the business and administering the estate. As adequate protection, Veria proposes replacement liens and interest payments to the existing secured lenders, with liens on postpetition collateral to the extent prepetition collateral is consumed, and represents that the secured lenders' collateral position over the budget period will at least remain status quo.
Other First-Day Relief
Wages — authority to pay the prepetition Employee obligations described above and to continue Veria's employee compensation and benefits programs, covering payroll processing, paid time off, employee liability insurance and workers' compensation, together with confirmation of its right to modify or discontinue any part of those programs, and to implement new ones, after consulting the prepetition secured lenders and without further court approval.
Cash management — authority to continue the existing cash management system and its three bank accounts (a Wells Fargo account used as the primary payroll account and for affiliate funding, including payments to international service providers and receipt of international funds, and two Jeff Bank accounts, one connected to credit card and merchant processing and the other serving as the primary day-to-day operating account), pay bank fees and processing fees including prepetition amounts, and maintain existing business forms and books and records, with newly purchased or printed checks to carry the "Debtor in Possession" designation, together with a waiver of the deposit and investment requirements of section 345(b) and the U.S. Trustee Guidelines.
Utilities — an adequate assurance deposit covering approximately one-half of estimated average monthly utility cost, earmarked solely for utility providers in a segregated account at Veria's bank and funded within five business days of entry of the order, applicable only to postpetition payment defaults, plus procedures for resolving additional assurance requests.
Insurance — authority to maintain the eight Insurance Policies, pay any outstanding prepetition premiums, deductibles and self-insured retentions, renew, amend, supplement or purchase coverage, and continue paying Brokerage Fees.
Taxes — authority to pay prepetition Taxes and Fees, including amounts accrued but unpaid or underpaid, payments lost or not received in full by the Taxing Authorities, and prepetition-period amounts becoming due after commencement of the case, as well as postpetition and straddle-period Taxes and Fees.
Schedules — a 21-day extension of the deadline to file schedules and statements of financial affairs, which Veria attributes to the volume of books and records to be compiled and to the demands on its employees and professionals during the early days of the case.
In support of the cash management relief, Veria states that it has sufficient funds to pay the amounts described in that motion in the ordinary course by virtue of expected cash flows from ongoing operations and anticipated access to cash collateral and DIP funding.