John C. Erickson, founder of a national chain of retirement communities that began with a senior-living campus in Catonsville, plans to step down as chairman of his company after it emerges from bankruptcy this year.
He and five top managers, including the chief executive and chief financial officer and Erickson's two sons, will be replaced by a team chosen by Redwood Capital Investments LLC, a Baltimore-based investment firm that is buying Erickson Retirement Communities. The new team will take over once the company emerges from Chapter 11 bankruptcy by late March or early April, an Erickson spokesman said Wednesday.
"As Erickson Retirement Communities moves into a new era, it makes sense to transition to a new leadership team," the spokesman, Mel Tansill, said.
Erickson, founded 26 years ago with the opening of Charlestown in Catonsville, filed for bankruptcy protection in October with a plan to sell the struggling company to Redwood. The firm, controlled by Jim Davis, majority owner of Hanover-based staffing firm Allegis Group, outbid a team led by Kohlberg Kravis Roberts & Co. during a December auction and will pay $365 million, according to bankruptcy documents.
The sale to Redwood and the executive management changes are subject to court approval.
Davis, who will become Erickson's chairman and CEO, sent a letter Monday to Erickson employees, saying he has been working for several weeks to map out the future strategy and structure. He said the transition will take several months.
"The last year has been one of unprecedented challenges for Erickson Retirement Communities," Davis wrote. "With each day, I am more excited about working with all of you to make the next chapter in the Erickson story a long and successful one."
The new corporate leadership team will include a mix of Allegis executives and veteran Erickson managers, who Tansill said will help "provide continuity to our employees and our residents." The company will retain the Erickson name.
Some 23,000 residents live in 19 Erickson developments in 11 states, including three communities in Maryland. Erickson officials said neither the court filing nor the sale and subsequent management shake-up would mean any changes for residents or jeopardize their refundable entrance fee deposits, which can top $400,000.
Under new management, John Erickson, the current chairman, will become an adviser to Davis, Tansill said. CEO Bruce R. "Rick" Grindrod Jr., CFO Jeff Jacobson, and Tom Brod, executive vice president of finance, will step down but stay on as employees in transitional roles through the end of the year.
Also leaving their jobs, but staying on through the transition, will be Erickson's sons, Mark Erickson, currently chief operating officer, and Scott Erickson, who heads information technology for the company.
Top executives typically end up out the door after a company files for Chapter 11 protection, said Peter A. Chapman, president of Bankruptcy Creditors' Service, which publishes newsletters about large corporate restructurings.
"The people that take the company into bankruptcy usually don't bring it out," said Chapman, who has been following the Erickson case. "The purchaser says, 'I want the assets; I don't want the senior people.' Most rank-and-file kind of people, their jobs are going to be pretty secure."
Erickson employs 353 workers at its corporate headquarters in Catonsville and more than 12,000 at its communities, including Charlestown, Oak Crest in Parkville and Riderwood in Silver Spring.
Once the bankruptcy proceedings are complete, plans call for Allegis executives Alan Butler and Bill Butz to step in as chief operating officer and chief financial officer. Rounding out the team will be five Erickson executives, including Matt Narrett, executive vice president and chief medical officer, and Adam Kane, vice president for government and community affairs.
Chapman said the departing Erickson executives likely have severance agreements. Court approval will be needed if the bankruptcy estate is expected to pay, but not if Redwood cut a deal to pay them directly, he said.
Erickson filed for bankruptcy to restructure debt, split the core management and real estate businesses into separate entities, and pave the way for a sale. Its real estate arm, which acquired land for campuses and future projects, was hurt by the recession, as seniors who couldn't sell existing homes put off moving to continuing-care communities. Early last year, the company blamed the deepening recession for a 2 percent staff reduction, with most of the 260 layoffs at corporate headquarters.