Acquisition of Skilled Nursing Portfolio in Mid-Atlantic
An experienced owner and operator of skilled nursing and senior living properties (“Borrower”) reached an agreement to acquire the fee simple interest in a skilled nursing facility (the “Fee Simple Facility”) and a long term leasehold interest in a skilled nursing facility (the “Leasehold Facility” and collectively the “Portfolio”). The Portfolio consists of over 300 beds in the Mid-Atlantic region. The Borrower planned to lease both facilities to a tenant who is a licensed nursing operator with experience in the region.
HJ Sims was approached by a representative of the Borrower to provide subordinate financing, which the Borrower used together with a senior bank loan, a note from the seller, and an equity contribution from the Borrower to fund the acquisition of the Portfolio.
The financing presented a number of challenges:
- Due to a delay of certain approvals needed to complete the acquisitions, staggered funding dates were needed for each facility in the Portfolio.
- With the acquisition of the fee interest in one facility and the leasehold interest in the other, each facility provided different security packages, requiring flexibility with the structuring of the financing.
- As a result of the different ownership structures of the two facilities and the number of parties involved, several intercreditor agreements needed to be negotiated, adding to the complexity of the financing.
In order to meet the timing needs of the acquisition, HJ Sims structured two separate subordinate loans totaling $6.025 million, with the first loan of $5.00 million used to finance the acquisition of the of the Fee Simple Facility and the second loan of $1.025 million used to finance the acquisition of the Leasehold Interest Facility. The two loans were structured to effectively be cross-collateralized through Pledge and Limited Principal Guaranty agreements, helping to diversify the risk between the two properties by requiring excess cash flow from one facility to be used for debt service shortfalls at the other. Additionally, Sims’ was able to negotiate several intercreditor agreements between the multiple stakeholders involved in the financing.
HJ Sims issued two series of taxable bonds, which were sold through its Private Client Group to high net worth accredited investors, to fund the subordinated loans. The Series I Bonds closed in January 2018 and the Series II Bonds closed in May 2018 within 30 days of the Borrower receiving the requisite approvals need to complete the acquisition.
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