HJ Sims Successfully Completes $16 Million Bank Debt Replacement/Refinancing for Phoebe Ministries
“Jim Bodine and David Saustad were both extremely valuable assets to our financing team. This most recent partnership with HJ Sims was a relatively straightforward refinancing compared to our more recent transactions. However, this relatively straightforward transaction was made more complicated by the senior living lending market conditions at the time, as well as elevated interest rates. We were able to work through these items, and add a third banking relationship, with relative ease, largely due to the dedication of both Jim and David. Overall working with the HJ Sims team was a great experience and look forward to working with them again.”
— Thomas L. Baer, CPA, Chief Financial Officer, Phoebe Ministries
Partnered Right®
Phoebe Ministries (“Phoebe”) is a not-for-profit, multi-facility organization specializing in healthcare, housing, and support services for older adults. Founded in 1903 and affiliated with the United Church of Christ, Phoebe offers a full continuum of care to serve the diverse needs of older adults – ranging from residential living options (independent and assisted) and services including long-term care, short-term rehabilitation, geriatric care management, specialized programs for persons with cognitive diseases such as Alzheimer’s and respite care. Located in seven Pennsylvania counties and serving approximately 20,000 seniors annually, Phoebe currently operates four continuing care retirement communities, eight affordable housing facilities, home and community-based services, and three pharmacies serving Phoebe communities as well as unaffiliated communities. The Phoebe Ministries Obligated Group is comprised of: i) Phoebe-Devitt Homes (the Parent), ii) three of four CCRCs (Phoebe Allentown, Phoebe Berks & Phoebe Richland, including the Chestnut Ridge at Rodale community), iii) and Phoebe Services.
Jim Bodine, representing HJ Sims and investment banks at which he worked previously, has worked with Phoebe Ministries for more than 30 years on a variety of financings as well as supporting the organization’s pursuit of additional growth. This latest phase of work consisted of Phoebe’s engagement of Sims in early 2024 to assist with refinancing its Series 2014 Bonds, which had a pending 2024 put date.
Structured Right®
As of early 2024, Phoebe had three outstanding long-term bonds, each held by commercial banks:
• Series 2014 Bonds ($16.4 million in par that financed an expansion at the Richland campus)
• Series 2022A Bonds ($74.2 million in par that financed the Chestnut Ridge independent living expansion project)
• Series 2022C Bonds ($23.3 million in par that refinanced previous outstanding debt)
The Series 2014 and 2022C Bonds were held by Citizens Bank, with the 2022A Bonds held by Truist Bank (See more: Case Study – Phoebe Ministries May 2022). In late 2023, Sims worked with Phoebe to determine if Citizens Bank would be willing to renew its commitment on the 2014 Bonds, having a put date in the first half of 2024. Citizens ultimately decided to not renew the commitment for this debt, while retaining its credit exposure on the recent Series 2022C refinancing. Citizens did, however, agree to extend the put date from April to October 2024, allowing Phoebe sufficient time to explore alternatives and implement a preferred refinancing solution.
Sims considered both fixed rate bond and bank debt options for the refinancing. Based on the amount of debt to be refinanced and prevailing market conditions, refinancing with bank debt represented the most cost-effective solution, considering anticipated interest cost, up-front financing cost and timing/ease of implantation relative to fixed rate bond financing.
Executed Right®
Sims conducted a broad bank solicitation, canvassing more than twenty banks identified as having potential interest in providing financing to Phoebe. This generated several attractive financing proposals with favorable terms including attractive interest rate pricing, low up-front fees, measured conditions precedent to financing and attractive covenants, consistent with Phoebe’s existing Master Trust Indenture as well as the recently-completed Series 2022 Bank financing. Sims organized the review of proposals and negotiations with interested parties which culminated in Phoebe’s selection of Lakeland Bank, now known as Provident Bank via the merger of Lakeland and Provident Banks that closed in May 2024. Attributes of the refinancing proposal included a low cost of capital, including provision of a synthetic fixed rate via interest rate swap, a long tenor (put date) that would limit loan renewal risk, and substantial conformance to Phoebe’s existing master trust indenture covenants (and those in the other outstanding bank debt). Moreover, with Provident as a new lender, expanding Phoebe’s banking relationships to three banks, Phoebe enhanced its capacity to access additional bank financing, as desired, for any future capital needs as it continues to grow.
Regarding the use of floating vs. fixed rates, Phoebe was inclined to continue to fix the interest rate on the refinancing debt via a floating-to-fixed interest rate swap. Sims collaborated with Marathon Capital Advisors, as swap advisor, to review several hedging options – these included hedging a portion, rather than all, of the loan and utilizing a cancelable swap cancelable prior to the stated termination date. Phoebe ultimately decided to fully hedge the loan without a cancellation feature due to 1) the inverted shape of the yield curve with short-term variable rates exceeding long-term swap rates and 2) the cost of a cancellation feature being too costly given the volatility in the market at the time.
Financed Right®
In sum, with Sims’ leadership and the collaboration of Provident Bank and Marathon Capital Advisors, Phoebe successfully secured $16 million for the refinancing of the Series 2014 Bonds, with an all-in rate of 4.39%, 10-year credit commitment and continuing flexible financing security/covenant package that positions it for future growth and capital access.
For more information, please contact:
Jim Bodine
267.360.6245
David Saustad
240.207.1202