Skidaway Health and Living Services, Inc. owns the Marshes of Skidaway Island, a non-profit, 501(c)(3) corporation. The Marshes is a Life Plan Community that offers a full continuum of care with independent living, assisted living and skilled nursing services on a single campus.Continue reading
This event has been thoughtfully developed to include content designed to optimize networking and learning to look beyond the pandemic. Industry Leaders lend their expertise to provide insight on trending topics.
Date & Time: January 27-28, 2021
Melissa Messina discusses the Relief Funding Option in FEMA.
Johnny Sears provides insight into Repurposing Aging Senior Living Facilities to Affordable Senior Housing.
- Melissa Messina, Senior Vice President
As we continue to experience fluctuations in our capital markets, HJ Sims is committed to Tracking the COVID-19 Impact.
by Gayl Mileszko
In Act 3, Scene 1 of the Shakespeare play, Prince Hamlet asked, “To be or not to be?” bemoaning the pain and unfairness of life amid a sea of troubles, but acknowledging that the alternative might be worse. Nine months into our current global calamity, enduring the “whips and scorns” of this pandemic, so many of us have weighed our chances of contracting and surviving or spreading the coronavirus against chosen behaviors. In the United Kingdom as well as the United States, some of our most recent choices involve taking one or more of the emergency use authorized vaccines. Here, the Pfizer-BioNTech and Moderna COVID-19 rollout has been underway for about a month now and 31.1 million doses have been distributed. States are individually responsible for implementing programs but priority has been given across the board to health care workers and those in long term care facilities. CVS and Walgreens are critical to the plan and they aim to make at least initial visits to nearly all nursing homes by February. Some states are already making inoculations available to those over age 65 lest we “lose the name of Action” or momentum in our struggle.
The American Health Care Association reports that about 45% of long term care workers have already been vaccinated. But surveys indicate that 29% of those who work in health care delivery settings said they would probably not or definitely not take the vaccine even if it were free and deemed safe by scientists. Hesitancy mirrors that of the general public where as many as 40% plan to wait and see or pass for now due to worries about the lack of long-term studies on side effects compounded by the need to have two doses, concerns over the type of antigen itself or misinformation about genetic impacts that messenger RNA vaccines could have, general mistrust of government and perceived profits being made by the pharmaceutical companies, and concerns about duration and effectiveness against the new and more contagious variants of the virus that have begun spreading. Refusal rates this high can certainly jeopardize our ability to achieve what many believe is the critical need: population immunity.
Unfortunately, no one is expecting the pandemic to subside by this spring. There is talk and hope of having most American citizens vaccinated by the third quarter of this year. The new administration proposes additional stimulus to speed up the testing and vaccination process. Health care providers are offering an array of incentives to employees and requirements for prospects. The U.S. Equal Employment Opportunity Commission in December released guidance stating that employers can require proof of COVID-19 vaccination from employees — with some exceptions. Dialogue in the coming months will include various “immunity passport” initiatives affecting all of us that may be highly controversial but could prove to be a first critical step in restoring a return to air travel, hotel stays, mass transit, restaurant dining, tourism, conventions, sporting events, commercial real estate, and the entire continuum of senior care from independent living to assisted living to memory care and skilled nursing.
Some parts of the economy are being permanently altered by SARS-CoV-2 as is trust in certain institutions, notably including the media. At the federal, state, community, and business/institution levels, it is extremely challenging to communicate effectively with stakeholders who have so many diverse political, legal, medical, religious, investment, and historical views. Skepticism is rampant. One recent survey by communications firm Edelman found that we not only have a pandemic but an “infodemic,” an era of information bankruptcy and poor “information hygiene”. Communications from “my employer” have now become the most trusted source of information at 61%. CEO’s must take this message to heart and redouble efforts to be transparent and to safeguard information and product quality as well as to protect and upskill workers and inform and engage their communities and investors of these efforts.
Quarterly corporate earnings reports for the most recent period have just began and analysts are scouring the last three months of performance while peppering leadership with questions on plans and forecasts for the start of 2021. Traders and investors are also carefully listening to the statements and testimony from key incoming members of the Biden Administration on the many new policy proposals and their potential market impacts. Much has not yet been “baked in” to evaluations and certain markets as the shift in Congressional leadership is still being assessed.
Most U.S. markets nevertheless remain on fire going on three weeks into the new year, buoyed by our central bank’s policy of unprecedented accommodation for the foreseeable future. This week’s investment grade corporate new issuance is again expected to exceed $25 billion. So far this year $22 billion of high yield corporate bonds have priced and this could be the busiest months on record for this sector. Initial public offerings proceed apace. Record inflows into high yield municipal bond funds are a perfect reflection of the ongoing demand from individuals for some tax-exempt “oomph” in portfolios that may otherwise be producing nothing more than negative real returns.
Income investors are advised to contact their HJ Sims representatives for recommendations of individual bonds tailored to their risk and capital needs profiles. The general muni market, as reflected in the ICE BoAML Index is up 0.04% this year while the HY muni index has gained 1.03%. High yield corporates are up 0.37%, and convertible bonds are returning a whopping 4.84%, primarily driven by gains in TESLA. U.S Treasuries, by comparison are down 1.15%,
We live amid a raging pandemic but the season has changed and we know that many other changes lie ahead. In many ways, we have not been down this path before. A new president is being inaugurated while an article of impeachment is pending against the former president. We have an unusually close relationship between the incumbent Chair of the Federal Reserve and his predecessor, the incoming Treasury Secretary. The central bank has the greatest single impact on markets and may use yield curve control, more liquidity support, potentially set a negative interest rate policy or exploring the use of digital currency. Major policy reversals are possible, impacting everything from taxes to health care, to energy and the environment, to immigration and corporate regulation. We may face inflation, a weakening dollar, and more horse trading than usual, given the thin margins in both the House and the Senate. We at HJ Sims wish godspeed to all assuming new public office and working to speed a recovery in each and every sector while supporting our essential services and entrepreneurs and the promising economic future ahead. As Shakespeare wrote in another famous play: “Come, love and health to all. [We] drink to the general joy of the whole table.”
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CONTACT: Tara Perkins, AVP | 203-418-9049 | email@example.com
HJ Sims Partners with The Bethel Methodist Home to Refinance High Interest Rate Acquisition Bonds
FAIRFIELD, CT– HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935, is pleased to announce the successful December 2020 closing of a $30,030,000 financing for The Bethel Methodist Home, d/b/a The Knolls, a non-profit CCRC (Continuing Care Retirement Community) located in Valhalla, NY. The community, which opened in 2002 under the name Westchester Meadows, offers independent living, assisted living and skilled nursing services on one campus.
In 2008, Westchester Meadows experienced financial difficulty, which culminated in a bankruptcy filing in 2015. The community was acquired in 2016 with the proceeds of tax-exempt and taxable bonds privately placed with a single bondholder. Under new management, The Knolls began to thrive. Occupancy levels increased from 57% in 2016 to 91% pre-COVID and management has invested $12 million in renovations. Management contacted Sims to assist in refunding the existing high interest rate debt.
In addition to reducing the interest rate, a portion of the 2016 debt was to mature in 2023 and needed to be restructured. The challenge was to create a level debt service structure that would avoid the 2023 balloon payment while achieving overall savings. Additionally, a non-call provision blocked refunding the debt until 2024. Management and Sims negotiated an early exit, but it required a tight timeline for closing. Sims structured the taxable bond series to mature in 10 years. To lower debt service and create level annual payments, the tax-exempt series does not begin to amortize until the taxable series is retired, and extends 11 years beyond the prior maturity.
The new bonds needed to be issued in December 2020, but redemption could not occur until January 2021. Despite the success of The Knolls, marketing bonds for a recently financially troubled community during COVID-19 posed challenges. Sims’ team specializes in identifying and communicating the underlying strengths of every financing; this expertise was leveraged in marketing and the refunding was completed in 90 days.
On December 23, 2020, Sims closed on the $30.03 million Series 2020 Bonds for The Knolls with 20%+ of the issue purchased by Sims’ Private Wealth Management clients. The yield on the 10-year taxable series was 6.125% and the interest rate on the 35-year tax-exempt series was 4.90%, below the 7.00% yield on the prior debt.
“25 years ago, I worked with Sims and was waiting for the day to do another financing with their superb team of professionals. Finally, that day came, and Andrew Nesi and his team did not disappoint. During COVID-19, with a very small window dictated to us by our current lender and the holiday season upon us, we successfully met all deadlines and refinanced The Knolls through a combination of tax-exempt and taxable bonds, saving close to a $1,000,000 per year in interest and fees. Andrew recognized the strength of this community in the mere four years this campus has been part of Bethel, and now through this refinancing, strengthened our position. I look forward to many future endeavors with HJ Sims” – Beth Goldstein, CEO, The Bethel Methodist Home.
Financed Right® Solutions—Andrew Nesi: 203.418.9057 | firstname.lastname@example.org
ABOUT HJ SIMS: Founded in 1935, HJ Sims is a privately held investment bank and wealth management firm. Headquartered in Fairfield, CT, Sims has nationwide investment banking, private wealth management and trading locations. Member FINRA, SIPC. Testimonials may not be representative of another client’s experience. Past performance is no guarantee of future results. Facebook, LinkedIn, Twitter, Instagram.
March 18, 2020:
Dear Valued Client,
As you are likely closely monitoring the developments and impact of COVID-19, we are doing the same at HJ Sims. Our primary focus is the safety and well-being of our employees, our clients and their families.
We would like to update you on important preparations currently in place, and our ability to respond to your needs during this unprecedented time.
- We have enacted a comprehensive COVID-19 business response plan and remain confident that as a nimble and resilient organization, we will maintain business continuity. We are prepared in the event the situation continues to escalate.
- During this extraordinary time, we recognize that you rely on access to our financial professionals and representatives. As such, we have prepared plans for employees to work from different locations, as well as remotely from home. Alternate site work arrangements are intended to balance and diversify our resources to minimize risk for an extended period, if required, while using today’s technology to be ever-present for our clients.
- Our employees are being kept fully aware of the situation by our Executive Committee. We have established access to online company resources to help them manage during this unparalleled time.
Please be sure to keep us updated with your contact information so we may stay in touch with you.
We are confident that we are taking proper steps to ensure the continued operation of our business, and continue to follow guidance from official local, state and Federal Government and public health agencies, including the Centers for Disease Control (CDC). We will monitor and evaluate the situation and determine whether additional steps are needed to support our clients and communities.
We have strong financial talent who have the experience to weather all market cycles. We appreciate your trust and confidence in us. Please let us know if we can help in any way.
We wish you, your communities and your family all the very best.
Last updated: January 13, 2021
As we continue to experience daily fluctuations in our capital markets, HJ Sims is committed to keeping our employees, our clients and our business partners informed. We are diligently tracking the key indices and data that drive our sectors’ interest rates and access to capital. We have developed a set of straightforward charts that capture these trends and are updating them regularly, at times, daily.
We will update this page adding information as frequently as needed.
A Survey of Independent Living Desirability & Safety
HJ Sims participated in the Senior Living COVID-19 Sentiment Report, which surveyed over 4,000 current and prospective senior living community residents to assess their thoughts and feelings at the beginning of and during the COVID-19 pandemic. The old saying of “You don’t know what you’re missing until you try it” is something that rang true in the results.
The full report is available for download. The Survey, published by Plante Moran Living Forward and Retirement DYNAMICS®, was distributed to 23,000+ residents and staff at senior independent living communities nation-wide, along with prospective residents.
The U.S. Department of Health and Human Services, through the Health Resources and Services Administration, announced on September 1, 2020, assisted living facilities (ALFs) may now apply for funding under the Provider Relief Fund Phase 2 General Distribution allocation. The funding is made possible through the bipartisan CARES Act and the Paycheck Protection Program and Health Care Enhancement Act.
To combat risks during the current pandemic and better protect their residents, many ALFs have implemented CDC recommendations resulting in increased health care related costs to their facilities. ALFs may apply for funding to help minimize the financial impact of these increased expenses caused by COVID-19.
Helpful information for providers can be found at the Provider Relief Fund website, which includes previously recorded Phase 2 application webinars, frequently asked questions and other information on how to apply. Providers applying for the current Phase 2 General Distribution funding will have until September 13, 2020 to begin their application by entering their Tax Identification Number for validation.
In a recent podcast with The Bond Buyer, William Sims, Managing Principal, and Jim Bodine, Executive Vice President, of HJ Sims, offered some perspective and proportion around the impact of COVID-19 on the senior living industry and associated investments. Chip Barnett hosts. April 2020. Listen to the Podcast.
As the world collectively endures a pandemic unseen since perhaps 1918, it is natural to be concerned about our most vulnerable population: senior citizens. And, while seniors are at risk, along with the communities they call home, more light should be shone on the stringent safeguards that have been put into place to protect them. ASHA and LeadingAge, two organizations that work to support owners and operators of senior living communities, are actively soliciting positive feedback from residents and staff in order to share the side of the story that has mostly been in the media shade.
CALL TO ACTION: We are actively collecting positive stories to share. We encourage you to share your stories, along with the name of your community, contact information and anecdote.
An Overview of the Paycheck Protection Program and Economic Injury Disaster Loan Program
Following the announcement of unprecedented assistance packages, designed to help individuals and businesses weather the COVID-19 storm, many are now asking the same questions: Are we entitled to recovery? And, if so, how do we apply for assistance? Our summary provides an overview of the loan programs available, as well as guidance with respect to steps that businesses should take in the immediate future with a view towards receiving relief under such programs.
The Coronavirus Aid, Relief and Economic Security (CARES) Act was designed to deliver financial relief and respond to some of these concerns. Beyond stimulus checks, it also includes some new rules on tax-protected retirement accounts. Following are highlights of these changes; you can also contact your financial professional to discuss how these rules may impact your personal financial situation.
We are pleased to share a report from Fitch Ratings. The report is a compilation of discussions items and questions from participants of a recent webinar. The webinar addressed the potential impact of COVID-19 on two key aspects of the US healthcare system: acute hospitals and health systems, and Life Plan Communities.
The financial markets have been tumultuous and volatile over the past few weeks. At HJ Sims, we have been utilizing our scenario and stress testing tools to evaluate portfolios and help position our investors. In this paper, we will summarize the market environment and test four hypothetical portfolios against three scenarios: the COVID-19 Pandemic, a Global Recession and a Negative Interest Rate Environment.
The Bethel Methodist Home, d/b/a The Knolls, is a non-profit Continuing Care Retirement Community located on a 29-acre campus in Valhalla, New York in Westchester County. The Knolls offers a full continuum of care with independent living, assisted living and skilled nursing services on a single campus.Continue reading
by Gayl Mileszko
There is only a week to go until the Inauguration of our 46th President. The weather forecast for January 20 is for a partly cloudy day with temperatures in the mid-40s. But other conditions are not so favorable for this time of year and for these traditional American quadrennial ceremonies in which we all ask for God to bless America. The pandemic has already nixed most of the festivities that have accompanied the swearing-in since 1805, including celebratory inaugural balls and parades. But now in the wake of the storming of the U.S. Capitol on January 6, law enforcement is on the highest possible alert. The FBI is warning about armed protests at all 50 state capitals in the days leading up to the recitation of the oath of office by the Chief Justice. Fifteen thousand National Guard troops are being deployed to the historic grounds that lay between Independence and Constitution Avenues, the People’s House.
Two hundred thirty miles away on Wall Street, markets have barely flinched over these events. Many months ago, markets baked in assumptions of a peaceful transition of power. Investors and traders, as good at counting votes as any party whip, were unfazed when the House of Representatives approved articles of impeachment against the 45th President on December 18, 2019. They are again unfazed by this Wednesday’s vote in the south end of the Capitol. Dozens of major U.S. companies have responded with pronouncements that they are suspending political donations to some or all Members in the upper and lower chambers. Insiders understand that these bans are largely toothless as no one is fundraising at this part in the cycle with more than 660 days to go to the next election. Time and time again, we find that a lot not only can but does change in two years.
Since the start of the year, not a lot has changed in the financial markets. Prices on most assets are still extremely elevated, and rallies continue across most sectors on the expectation that additional fiscal stimulus will speed up our economic recovery. Although bonds have slightly weakened since the Georgia elections turned Washington “light blue”, as pundits label the razor thin Democrat majority in D.C., yields remain in historically low ranges. With expectations for even heavier federal spending. additional borrowing, and higher taxes, intermediate and long U.S. Treasury yields have jumped by about 24 basis points. This moved the 10-year past a 1% touchstone, but bear in mind that this yield exceeded 3.80% ten years ago. The 10-year yield is at 1.14% and the 30-year at 1.88%. The 2-year is relatively unchanged at 0.14% so far in 2021. It goes without saying that all these yields are producing negative real returns for investors.
The prices of all bonds are linked in some manner to Treasuries. So as government prices have dipped, BAA Corporate 10-year benchmark yields have risen by about 17 basis points to 2.82%. These rates nevertheless remain at historic lows, so corporate borrowers are still lining up for market entry. And both investment grade and high yield corporate bond issues cannot come fast enough to satisfy domestic and foreign demand. High yield sales total $13.2 billion so far this month with orders exceeding offers by more than three times, while investment grade issuance is already at $55.6 billion with recent trades more than 2.4 times covered. Corporates have clearly been buoyed by stock prices. At this writing, the Dow, S&P 500, and Nasdaq indices are each up about 1.2% this year while the Russell 200 is up nearly 6%. Oil is up more than 7%, but gold prices have fallen more than 2% and silver prices are off by nearly 5%. Among digital currencies, Bitcoin has been extremely volatile but is up nearly 15% in 2021.
Municipal bond yields have also inched higher since the start of the year, but Bloomberg is reporting that valuations are currently at record highs. The ratio of top-rated tax-exempt yields to U.S. Treasuries at 67% is the lowest since 2001, a huge drop from where it stood ten months ago at 215%. The 2-year AAA rated general obligation bond MMD benchmark at 0.15% is largely unchanged from last month. The 10-year and 30-year benchmarks have added 7 basis points and stand at 0.78% and 1.46%, respectively. Imagine that: top rated borrowers are still getting rates of under 1.50% for maturities in 2050! These are fantasy conditions still prevailing for most non-profit borrowers. For lower-rated and non-rated sectors, there are few deals so far this year to help us gauge the market. The Illinois Finance Authority brought a $26.6 million non-rated deal for the McKinley Foundation with a single 35-year maturity priced at par to yield 5.125%. The Wisconsin Public Finance Authority sold $6 million of non-rated bonds for St. Francis College in Brooklyn at par to yield 5.50% in 2024.
Investors cannot source enough tax-exempt product as many state, local and non-profit borrowers are taking advantage of low rates prevailing in the taxable and corporate bond markets to refinance higher coupon bonds. The 115th Congress removed the ability of tax-exempt borrowers to refund most long-term debt at tax-exempt rates, but many in the muni market hope that the 116th Congress will appreciate the urgent pleas from non-profits who are lobbying to restore the authorization and allow them to refinance outstanding debt at these extremely low rates. Record levels of taxable issuance would likely decline if, as some predict, tax reform legislation is enacted later this year or next with a provision restoring the exemption. This would significantly increase the supply of traditional munis for those looking to offset potentially higher individual tax rates.
We at HJ Sims are looking forward to this new year and cheer those states with the safest, most rapid and successful vaccine rollouts for health care workers, long term care residents and those greatest at risk of contracting the coronavirus. Along with our investors, we simultaneously root for those entrepreneurs and manufacturers of cost-effective air and surface cleaning and filtration technologies. While we share the concerns of millions over the civil unrest, the key but often controversial role of social media, the prospect of inflation, the status of mortgage, rent, student loan and other delinquencies, our growing federal and state debts and deficits, and the unprecedented year-long financial stress on most every non-profit and for-profit enterprise, we pause to count our many blessings and pledge to make our voices heard even louder this year.
For more than 85 years, we have worked with colleagues in our industry to improve market access for our borrowers, market intelligence for our investors, and public understanding of the key role that the municipal market has in facilitating essential purpose project financings. We are proud of our role in helping to originate the quintessential social good bonds and encourage our readers to join us in working collaboratively to provide and protect the safest living and learning options for our seniors, our disabled, and our young going forward. Please contact your HJ Sims representative to share your thoughts on how we can collectively enhance our advocacy on behalf of our country’s greatest needs in 2021.
Exclusive Opportunities For Our Clients
This comprehensive workshop provides an overview of how and why you should build a Green House community. Leaders from Green House organizations and strategic partners will explore key cornerstones of developing Green House homes.
Date & Time: February 4, 2021 from 10:00am – 4:30pm
Financing Panel Discussion – Industry experts discuss innovative and efficient financing structures, including tax-exempt bonds; HUD, direct bank, and USDA financing; and interim financing and seed capital.
Session Details: 3:15pm – 4:15pm
As we continue to experience fluctuations in our capital markets, HJ Sims is committed to Tracking the COVID-19 Impact.
Governance Webinar Series: How does a board set an organization’s strategic vision amongst the uncertainty of the times?
Session Description: HJ Sims is sponsoring this series of comprehensive virtual content geared directly toward the Governance of senior living providers. Targeting board members, leadership teams and those new to these roles, but a benefit to all leaders in our field, the sessions will tap the intellectual capital of industry experts from governance, law, finance, development, and strategic planning. The series will explore the role of the board as well as its legal responsibilities. Included will be a discussion of the financial outlook coming out of the Pandemic as well as recent and future financial trends. There will be a session dedicated to strategic planning in unprecedented times. Finally, the series will culminate with a panel discussion amongst CEOs and Board Chairs with a passion for and demonstrated excellence in not-for-profit senior living governance.
Individual Session Details:
Financial Trends and Outlooks for Providers
- This session will review the new reality of COVID expenses that are here to stay.
- February 11, 2021 from 11am to 12:15pm EST
- Facilitator: Tom Bowden, Vice President – Investment Banking, HJ Sims
Strategic Planning in Unprecedented Times
- During unprecedented times, it is still feasible for communities to consider various repositioning
perspectives and scenario planning for the “what if’s”.
- February 25, 2021 from 11am to 12:15pm EST
- Facilitators: Tom Bowden, Vice President – Investment Banking, HJ Sims and Dana Wollschlager, Partner, Plante Moran Living Forward
Governing during Challenging Times
- A panel of CEOs and Board Chairs will provide best practices in governing during difficult and challenging times.
- March 11, 2021 from 11am to 12:15pm EDT
- Facilitator: Aaron Rulnick, Managing Principal, HJ Sims
As we continue to experience fluctuations in our capital markets, HJ Sims is committed to Tracking the COVID-19 Impact.
by Gayl Mileszko
Speed is of the essence when it comes to delivering vaccines, election outcomes and aid to unemployed workers and locked down businesses. There are ways to measure baseball’s fastballs, touchdown sprints, and high-frequency trading executions. But some gauges can be a bit tricky. The speed of the Earth’s rotation, for example, varies constantly due to the motion of its molten core, oceans and atmosphere, as well as the impact of celestial bodies like our moon. Tides and the change in distance between the Earth and the moon all make for daily variations in the speed the planet rotates on its axis; even heavy mountaintop snow that melts in summertime can cause a shift. Given all the unprecedented events of 2020 around the world, it should come as no surprise that our Earth has literally been spinning unusually quickly of late. In fact, the shortest day on record was July 19, when the planet completed its rotation in 1.4602 milliseconds less than usual. Records were broken 28 times last year and the Earth in 2021 looks to be moving at an average daily pace that is 0.5 milliseconds faster than the standard 24 hours.
In recent decades, the Earth’s average rotational speed had been consistently decreasing. Scientists at the Paris-based International Earth Rotation Service who monitor the planet’s rotation inform countries six months in advance when “leap seconds” need to be added to align with solar time. And, since the 1970s, official timekeepers have made 27 adjustments to keep atomic clocks in sync with the slowing planet. Most recently this occurred on New Year’s Eve in 2016. Now, for the first time on record, a negative leap second may be needed. The World Radiocommunication Conference members will make the decision when they next meet in 2023.
A more common standard measure of time, the Gregorian calendar, has been in use since 1582 and has just flipped into 2021. But for some, the new year began on December 14 when the first health care workers and nursing home residents were administered the Pfizer-BioNTech COVID-19 vaccine. Four days later, the U.S. Food and Drug Administration authorized a second vaccine from Moderna for emergency use. The two mRNA vaccines have shown remarkable effectiveness of about 95% in preventing COVID-19 disease in adults when given in two doses at 21 days and 28 day intervals, respectively. At this writing, 4.56 million Americans have received injections. All of us on Main Street and Wall Street are closely monitoring the rollout of this historic mass vaccination program, fervently hoping that it puts an end to the illness and loss suffered here and around the world.
Although there is federal guidance and $8 billion of federal funds, states are responsible for running the COVID-19 vaccination campaigns and prioritizing residents. There have been issues with public information as well as with storage, handling and administration of the doses. There is also an issue of public confidence. Not everyone is anxious to get the vaccine. Many have adopted a wait-and-see approach. The sheer number of healthcare workers and long term care residents at the head of the line means that there will be many months before others become eligible. Some have objections on religious grounds. More than 20.8 million Americans have already had the coronavirus; those who have recovered may believe that they have some level of immunity. Some cite concern over the speed with which the vaccines were developed and are worried about potential side effects. Those who look in the rearview mirror can find mis-steps on the part of the federal, state and local officials and may distrust the ability of elected and unelected government workers to handle anything having to do with the pandemic. Some find the matter political, others are skeptical of the big pharmaceutical companies who are benefiting financially from the rush to market. For those with cognitive issues, consent procedures can prove vexing.
As the majority await evidence of the effectiveness and safety of the vaccines, entrepreneurs are hard at work on other approaches. Some nursing homes, hospitals, restaurants and cruise ships are installing air purifying systems using needlepoint bipolar ionization technology to disrupt surface proteins of viruses and bacteria, and de-activate harmful pathogens. Hotels, schools and offices are installing ultraviolet light emitting diodes in heating and cooling systems to disinfect surfaces, ventilation and water systems. These technologies, or others yet to come, may also help to generate public confidence and resurrect businesses and institutions severely damaged by the pandemic and related lockdown policies.
Long-term care facilities have experienced significant drops in occupancy as a result of the deadly toll that the coronavirus has taken on the frail elderly population. Some 40% of all reported COVID-19 deaths are said to have occurred in nursing homes. Rebuilding public confidence in the safety of these care communities is critical to the industry and will, in many cases, require considerable time and plenty of documentation and testimonials. Providers are exploring the expanded use of infection preventionists, recommending changes to Medicaid reimbursement rates to boost the salaries of their health and personal care workers, and working to develop improved regulatory reporting procedures.
While nursing homes, assisted living, and memory care facilities may take longer to return to pre-coronavirus levels, other battered sectors of the economy are primed to reverse if not soar once herd immunity appears imminent, federal and state efforts meet with widespread support, and vaccines and technologies are proven successful. When does that happen? There is a colloquial expression attributed to Supreme Court Justice Potter Stewart: “I know it when I see it” that described his threshold test for obscenity. This is the type of test we will apply to determine in our own non- epidemiological ways when the end to this hideous pandemic is near. It will involve a combination of federal and state pronouncements, toned down and redirected media coverage, personal anecdotal experience, and the emergence of green shoots in our respective neighborhoods.
Industries most impacted by the pandemic stand to gain the most in a world about to be restored to something akin to the 2019 version of “normal”. In the interim, and for the foreseeable future, rallies are unlikely to abate in markets for industries proven essential to day-to-day, stay-at-home life in the past year: grocery stores, pharmacies, home improvement, on-line retail sites with rapid home delivery service contracts, information technology, household durables, fast food restaurants, agriculture, farm equipment, personal and health care supplies, key ports serving cargo ships, vacation rentals, recreational vehicles, golf-related products, testing services, cybersecurity, defense and other key domestic manufacturing, utilities, water and sewer, solid waste, affordable housing, technical schools, alcohol and tobacco.
Investors with cash and foresight will look to position portfolios for a post-COVID-19 economy. We will look to capitalize on the slow but sure rebound in oil and gas exploration and storage, steel, energy equipment and services, larger hospital systems, health care technology, banks, life and health insurance, property and casualty insurance, and toll roads with steady commercial traffic. In addition, steady reversals over time should occur in homebuilding, automobiles, aerospace, public colleges and universities. Among the sectors likely to take the longest to improve as there have been major and perhaps irreversible shifts in remote work and recreational choices. Our lives have changed in major ways since March and therefore partial rebounds will likely lag for airlines, hotels and resorts, rental cars, textiles and apparel, beauty products, mass transit, parking, casinos, gyms, cinemas and theaters, convention and sports venues, finer dining restaurants, jails, small private colleges, student housing, and commercial real estate.
Scrutinizing the relative differences in fundamentals including governance, geography, balance sheets, and COVID-19 case and death statistics, will take time but will pay off for well-advised investors. Regular and transparent reporting by for-profit and non-profit entities is required. Few of the old precedents apply; last year brought dozens and dozens of new pre-packaged bankruptcy cases with unexpected outcomes for senior bondholders having less than majority votes. Changing consumer preferences and potential new regulations are bound to adversely impact holdings, including certain media. Population shifts are underway. Some entities have significantly diluted equity and incurred strangling debt loads. Governments at every level will need to re-prioritize budgets given the costs of debt service and urgent social and infrastructure needs. Underfunded pensions and other post-employment benefits may threaten future general obligation bond debt service as well as interest and principal on state and local revenue bonds with weak security protections.
For bondholders, 2020 was a year in which fixed income was largely redefined as lacking income. Top-rated 30-year yields dipped well below 1.40% for tax-exempts and 3% for corporates. Even below investment grade and non-rated municipal and corporate securities sold at premium prices producing yields well below 5%. The chart below depicts 12 months of declining yields and illustrates the decade long decline in benchmark bond yields. It also reflects the significant volatility and gains in the stock and commodity markets, and the growing acceptance and risky participation in digital cryptocurrency markets.
Source: Bloomberg; Thomson Reuters Refinitiv
At the start of the new trading year, starting valuation levels for stocks and bonds are extremely high. Traders have been expecting prices to normalize for years and years; seasoned ones understand that this is bound to happen at some point. But our Federal Reserve has intervened in the markets for the past 12 years now and it is unclear when we should expect them to back away from hyper-accommodative policies. Central banks were the quickest to respond to the pandemic by creating and supporting liquidity facilities for every domestic market and some foreign ones as well. Their balance sheets have exploded. Few can argue with the value and timing of their tinkering. How and when they unwind, and with what impacts, are questions not faced before in our history. How our fiscal leaders respond after the past rounds of stimulus at a time when the debt and deficit are at levels not before seen is another question that investors, domestic and foreign, pose.
Gauges of sentiment from organizations including the American Association of Individual Investors, show bearishness at multiyear lows despite the global surges in COVID-19 cases, questions over the origins of the virus, and uncertainty over U.S. elections and various national policies. The major near-term risks to the financial markets include larger-than-anticipated increases in inflation rates, increases or decreases in zero-range and negative interest rates, downgrades in sovereign credits, a lower dollar, increased regulatory action, and any unexpectedly large defaults in the corporate, mortgage, and muni space.
2020 will go down in multiple record books. We saw the first president to be impeached and then run for reelection. Both the presidential candidates won more popular votes than any other in our history. We suffered the largest GDP quarterly decline followed by the largest quarterly increase, and witnessed a record-breaking single year increase in the national debt and market swings we could barely stomach. A quarter of U.S. adults say they or someone in their household has been laid off or lost a job because of the coronavirus outbreak, and 32% say they or someone else in their household has taken a pay cut due to reduced hours or demand for their work.
The $3.97 trillion muni market saw $474.05 billion of issuance in 12,940 deals in 2020 compared to $426.35 billion in 11,596 transactions in 2019 and setting a new record. Add to that private placements, corporate CUSIPs, and direct bank lines of credit which took so much tax-exempt paper out of the market and failed to satisfy a relentless demand. Corporate CUSIPs grew 223% over 2019 and landed at $40 billion for the year. The general muni market returned 5.26%, a seventh straight year of gains. High yield munis ended higher by 4.8%. Taxable munis with $140 billion of primary market sales closed up 11.82%. Zero coupon bonds were up 8.88%. Investors added about $33 billion to municipal bond mutual funds and the oldest gauge of municipal yields, the Bond Buyer 20 General Obligation Bond Index, which tracks yields on 20-year munis, touched 2% on Aug. 6, the lowest since 1952.
A record $1.75 trillion of investment grade corporate bonds was sold in 2020. High yield corporate issuance ended the year with approximately $432 billion of record issuance. The U.S. High Yield ICE BoAML Index ended the year up 6.17% and at all-time low yields of 4.18%. The U.S. Investment Grade corporate bond Index ended 2020 with returns of + 9.81%, a record; $1.75 trillion of new debt was sold in 2020.
A new year has begun and it is time to tinker with your portfolio. We at HJ Sims hope that 2021 brings only happy, healthy and prosperous days for you and your family. To that end, we encourage you to be in regular contact with your HJ Sims financial professional, to carefully add individual high yield credits we recommend to select income portfolios, to limit exposure to certain bond funds and ETFs, to consider preferreds, convertibles, zeroes and and taxable munis for retirement accounts, to prepare to take best advantage of the re-opening of our economy, to build up your emergency funds, to ensure that all your affairs are in order, to revise your monthly budgets, and to appreciate all the people, moments and little things that we took for granted at this time just one year ago.