Sims Works with Long-Term Client to Improve Bank and Bond Terms
“Over our 25-year relationship, HJ Sims has continued to offer innovative and well thought out solutions to Maple Knoll’s financing needs. We value them not only as an advisor, but a true partner.”
– Jim Stahl, Chief Financial Officer, Maple Knoll Communities
Partnered Right®
Founded in 1848, Maple Knoll Communities, Inc. (“MKC”) is an Ohio not-for-profit corporation that owns and operates two continuing care retirement communities: Maple Knoll Village and The Knolls of Oxford. MKC also offers several programs serving seniors including Maple Knoll Outreach Services for Seniors, three affordable HUD Senior Living Residences, Village Home Health and Hospice, WMKV 89.3 and 89.9 FM Radio Station, a Montessori Child Center, and the Hemsworth Wellness Center. In the greater Cincinnati metropolitan area, MKC serves on average approximately 2,800 seniors each year through its owned facilities, affordable housing corporations and outreach services. In addition, MKC has developed a strong partnership between the University of Cincinnati and its Maple Knoll Village campus and between the Miami University of Ohio and its Knolls of Oxford campus.
Sims has been serving as MKC’s investment banker for almost 25 years. In 1993, Sims financed a major expansion to the Maple Knoll campus and then financed phases I and II of the Knolls of Oxford campus in 1999 and 2002 respectively. In 2007, Sims financed incremental expansions at both campuses. The 1999, 2002 and 2007 financings were all financed with letter of credit enhanced variable rate bonds with a syndicate of banks. In 2010, Sims served as financial advisor to MKC to extend a portion of its letters of credit with the balance of the outstanding bank debt converted to bank qualified bonds. The 2010 financing also included a reorganization of the banking syndicate to include a total of six banks. However, as the banking landscape continued to change after the financial crisis, some of the banks expressed the desire for repayment. In 2013, Sims secured alternative financing for MKC to address the expiration of its letters of credit and bank qualified bonds and facilitate the repayment of the three banks that decided to exit the bank syndicate to reduce their portfolio exposure to senior living. The 2013 financing included: (a) $30.92 million of non-rated fixed rate bonds to repay the banks exiting the syndicate and to lock into longer-term and stable capital and (b) $36.0 million of a combination of direct bank purchased bonds and a taxable loan to secure a lower overall cost of capital.
Structured Right®
In 2013, the banks agreed to an initial term of seven years, and MKC entered into a corresponding seven-year swap. The call provisions on the 2013 fixed rate bonds, however, were ten years (at par) – three years beyond the initial bank term. This gap created some exposure for MKC and the 2013 bondholders if the banks were not willing to extend their commitment after the initial bank term expired. After three years had elapsed into the initial seven-year bank term, MKC and Sims decided to approach the three members of the bank group to request an extension to the bank term to match the call date on the fixed rate bonds of July 1, 2023. In addition, MKC and Sims began to explore a “blend and extend” strategy for the swap, whereby the initial swap would be extended to correspond with the new bank term, albeit at a lower interest rate given the current low interest rate environment. Finally, MKC sought relief on its liquidity covenant, from 150 to 120 days.
Executed Right®
While MKC’s lead bank, Huntington Bank, agreed to extend the term, lower its fee and swap rate and reduce the liquidity covenant, the other two banks did not. As such, MKC requested that Sims secure a commitment from a new bank under the more favorable terms to replace the two banks that did not approve MKC’s initial request. Sims was successful in securing term sheets from multiple banks that were willing to accept MKC’s requested terms. Ultimately, MKC chose MaineSource Bank to become its new bank partner along with Huntington Bank. The new terms included an extended bank term and swap to July 2023, a 20 basis point reduction in the bank fee and more than 60 basis point reduction in its swap fee and a reduction to MKC’s liquidity covenant. In addition, Sims secured approval from the 2013 fixed rate bondholders to amend the 2013 bond documents to lower the liquidity covenant as well from 150 to 120 days cash on hand.
For more about Financed Right® solutions, please contact:
Aaron Rulnick
(301) 424-9135