$61 Million Refunding for American Baptist Homes of the Midwest Generates Near Term Cash Flow Savings
“HJ Sims is one of our most valued business partners. They have played a key role in our system-wide repositioning with respect to both construction financing and innovative re-financing strategies.”
– Dave Zwickey, President and CEO, American Baptist Homes of the Midwest
American Baptist Homes of the Midwest (“ABHM”) is principally engaged in the business of owning and operating health care facilities which provide skilled nursing, convalescent and rehabilitative care to elderly persons on an in-patient basis, and residential care facilities (Assisted Living), senior residential apartments (Independent Living) and group homes for the developmentally disabled (Crest Services). ABHM is headquartered in Eden Prairie, Minnesota and has 13 locations in 6 states which include 589 skilled nursing beds, 273 assisted living units, 358 independent living units and 173 developmentally disable units. HJ Sims has worked with ABHM since 2011 and completed six financings for the organization.
HJ Sims was engaged by ABHM to currently refund the Obligated Group’s Series 2007 bonds and advance refund its Series 2009 bonds. Due to recent repositionings of many of their communities, ABHM’s cash position was lower than its organizational standard, so it was important that the new financing structure address this. In addition, HJ Sims worked with ABHM to identify other financing objectives such as lowering the Obligated Group’s cost of capital and achieve a minimum 5.0% present value of savings. Achieving each of these objectives would ultimately enable ABHM to increase its days cash on hand.
In order to meet ABHM’s strategic financing objectives, HJ Sims recommended a fixed rate, tax-exempt bond issue (the “Series 2017 bonds”). To generate greater upfront savings and cash for the organization, sinking fund payments were reduced in the first few years to lower overall debt service requirements. However, because of IRS tax constraints relating to average useful life, it was also important that the structure of the Series 2017 bonds not extend the maturity of the prior bonds.
On September 14, 2017, HJ Sims successfully priced a $61,785,000 issue with an arbitrage yield of 4.811%. On a net present value basis, the refunding of the Series 2007 and Series 2009 bonds provided ABHM a savings of $6,517,278 or approximately 11.13% of the par amount of the bonds refunded. By having lower sinking fund payments in the early years of the issue, $5,363,551, or 82%, of the total savings are to be realized in the first 3 years. This allows ABHM to bolster its cash position and increase its day’s cash on hand. The average annual savings after the first three years will be $236,123 and the average coupon decreased from 6.79% to 4.95%, which achieves ABHM’s strategic objective of lowering the Obligated Group’s cost of capital.
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