HJ Sims, ThriveMore Partner Again – Structure $102 million of Growth Capital for ThriveMore in Turbulent Financing Environment
“ThriveMore was very fortunate to partner with Sims again on this important financing. Tom Bowden and David Saustad led ThriveMore through an extremely challenging financing environment. While assisting us with our organizational strategic initiatives, Sims was able to secure extremely attractive terms for the 2024 transaction. As importantly, Sims also made sure ThriveMore had an eye toward the future. When things were hard, Sims helped us make difficult decisions and were unwavering in their dedication to our strategy and mission – Sims is a true advocate for ThriveMore.”
-Michael J. Brady, Chief Financial Officer of ThriveMore
Partnered Right®
hriveMore is a multi-site senior living organization located in North Carolina with campuses in Winston-Salem, Concord, Albemarle, and Arden. The organization first opened in 1951 as Baptist Retirement Homes of North Carolina. In 2022, ThriveMore began planning an expansion project at their Taylor Glen community in Concord, NC that would include 50 new independent living units, 12 new assisted living units based on the Green House model, and renovations to the existing dining facilities. Among other strategic pursuits, ThriveMore was also evaluating the viability of a new campus on the Atlantic coast in eastern North Carolina.
ThriveMore and Sims had successfully collaborated in 2023 on a concurrent acquisition and disposition. ThriveMore sold its Asheville based community, the Western North Carolina Baptist Home, which was comprised of 140 assisted living and skilled nursing units that had struggled financially due to the high acuity unit mix. Weeks later, ThriveMore acquired Ardenwoods which was also in the Asheville market and was a stabilized LPC with 100 independent living units and 48 assisted living units, as well as land for future expansion. Sims served as M&A Advisor on both transactions, negotiating the sale and purchase price respectively for each deal, and also assisted in financing the acquisition.
Building on that success, ThriveMore selected HJ Sims to assist with raising funds for the expansion financing at Taylor Glen.
Structured Right®
In the midst of one of the most turbulent financing markets for senior living communities in recent memory, Sims and ThriveMore began the planning process by reviewing several plan of finance options, including fixed rate bonds, bank debt, and a hybrid approach. There was a dearth of capital available in the bond market caused by months of record mutual fund outflows, and the bank market for LPCs (largely dominated by the regional banks) had tightened significantly in the wake of the domino effect beginning with the collapse of Silicon Valley Bank and First Republic Bank.
ThriveMore had an existing banking partner, First Citizens, that was interested in financing the project. Sims ran several scenarios and began negotiations with First Citizens over terms for the financing request. In addition to reviewing the financial considerations of the available options, Sims reviewed the option to implement a Master Trust Indenture (MTI). Sims and other trusted partners had been working with ThriveMore on exploring their “future state” – because they are in an aggressive growth mode, the team explored a variety of changes to the corporate structure as well as the establishment of an MTI. ThriveMore did not have an MTI in place as it only had existing debt with First Citizens on a taxable basis. An MTI would allow ThriveMore to have multiple lenders in place on a parity basis, create an obligated group, and create a modern legal structure.
In late 2023 First Citizens provided their proposed terms under multiple scenarios, including with and without an MTI. The proposal included the full $86 million financing request and competitive interest rates in the current environment as well as a 10-year term. However, to implement an MTI, First Citizens would require an update to the interest rate on ThriveMore’s existing debt that would be more in-line with current interest rates. ThriveMore existing debt had a low cost of capital that they wanted to keep in place. Sims reviewed financing scenarios to quantify the cost of updating the interest rate. Based on the results of the analysis, ThriveMore opted to avoid putting an MTI in place at present to keep the low cost of capital. Further, since First Citizens agreed to provide the funding for the full financing request, additional lenders were not needed to fund ThriveMore’s upcoming financing needs.
Further, to assist ThriveMore with balancing its cash and debt service coverage positions, Sims recommended borrowing additional debt to fund future capital improvements. Since 2020, ThriveMore had spent in excess of $30 million in cash to fund improvements at its existing communities to improve their competitiveness in their respective markets. While these expenditures were necessary, they had impacted ThriveMore’s cash position. To allow the organization to build its cash position back up, ThriveMore borrowed an additional $7.5 million to fund future capex.
Simultaneously with planning for the expansion financing, ThriveMore was in the process of acquiring an independent living and assisted living community in Arden, NC as well as land in New Bern, NC using taxable bridge loans with First Citizens. For acquisitions that include independent living, tax-exempt debt can’t be used to fund the purchase of the independent living portion due to IRS restrictions. As part of the expansion financing, the taxable bridge loans would be refinanced with permanent debt. Sims recommended adoption of reimbursement resolutions to eliminate the need to use more expensive taxable debt. Reimbursement resolutions allow organizations to reimburse themselves for previous capital improvements (a portion of the $30 million ThriveMore had spent of its own reserves) with tax-exempt debt. In this instance, ThriveMore would borrow tax-exempt debt under the reimbursement resolutions which created the ability to immediately use the proceeds to repay the bridge loans.
Ultimately, the structure of the financing included three tranches of debt:
• $67.7 million in long-term debt that would fund the Taylor Glen expansion, the refinancing of the Ardenwoods bridge loan, the reimbursement of previous capex, and the funding of future capex;
• $15.3 million short-term entrance fee debt that would be repaid from initial entrance fees from the Taylor Glen project; and
• $3.0 million in short term debt that would refund the New Bern land acquisition. ThriveMore structured a short maturity so that the debt could be restructured in the event ThriveMore developed a new community on the land outside of the existing “obligated group.”
• In addition, the $25 million existing taxable debt remained in place at 3.22% but under more favorable covenants negotiated as part of the 2024 financing
Executed Right®
With the structure of the financing in place, Sims worked with ThriveMore through the North Carolina Medical Care Commission (NCMCC) and Local Government Commission (LGC) issuance process. Sims drafted the NCMCC and LGC applications and guided the working group through the documentation process.
Financed Right®
On May 23, 2024, with market conditions remaining very challenging, ThriveMore and First Citizens closed on the $86 million financing. The long-term debt and entrance fee debt rates were naturally fixed at 5.28% and 4.95%, respectively, resulting in a low cost of capital in the current environment. The structure also includes an early prepayment penalty of 1%, which is far superior to the “make-whole” structure that accompanies most fixed rate bank loans, lowering the barrier if interest rates fall to refinance and incorporate a more modern borrowing framework including an obligated group and Master Trust Indenture.
For more information, please contact:
Tom Bowden
804.613.3280
David Saustad
214.909.8588