HJ Sims Generates Significant Debt Service Savings for Benedictine Affiliate
Benedictine Health System (d/b/a “Benedictine”), a Minnesota nonprofit corporation, is a Catholic healthcare system that provides long-term care services, congregate housing, assisted living, rehabilitation services, and other healthcare and social services. Benedictine owns, or has a controlling interest in, 23 nursing facilities with 1,815 licensed beds and 26 senior housing with services facilities with 1,890 units in five states. In addition, Benedictine has a non-controlling interest or provides management services to seven other communities.
In July of 2021, HJ Sims executed a financing for Benedictine that created an Obligated Group among 21 senior living communities and refinanced 24 series of outstanding debt. At the time, the strategic decision was made to leave Catholic Residential Services (“CRS”) out of the Obligated Group however there was still the opportunity to refinance for significant savings. Catholic Residential Services consists of two assisted living and skilled nursing communities located in Wisconsin.
The two series of debt outstanding for CRS had different final maturities which resulted in a front-loaded debt service structure that limited the organization’s ability to maximize cash flow. By extending the earlier maturity date of the Series 2007 bonds to match the later maturity date of the Series 2009 bonds, HJ Sims was able to structure level debt service while also creating additional debt capacity.
With the additional debt capacity, CRS was able to borrow for capital improvement and to repay intercompany loans. By issuing the debt on a taxable basis, CRS maintains the flexibility to pursue strategic options at the two campuses as well.
Given the small loan amount, Benedictine and Sims determined that it would be most appropriate to work with one of Benedictine’s existing bank partners that had participated in the Obligated Group financing but had maintained additional lending capacity for future financing opportunities with Benedictine and its affiliates. By also working with many of the same legal partners as the Obligated Group financing, Sims was able to lead a seamless underwriting and documentation process that enabled a closing to occur less than 11 weeks from term sheet execution.
HJ Sims worked closely with the Trustee of the outstanding bonds to confirm funds on hand and the redemption provisions. Unfortunately, because of certain language in the existing documents, it was necessary to fund an escrow, however Sims and Borrower counsel were able to work with the Trustee to minimize the escrow period and resulting negative arbitrage.
On December 1, 2021 HJ Sims closed on the $6,000,0000 taxable term loan. In keeping with the original objectives, the financing accomplished the following:
- Fund Capital Improvements: Taking advantage of its additional debt capacity, CRS borrowed over $475,000 to put toward planned capital improvements at the two campuses.
- Repay Parent Obligations: One of the objectives of the Obligated Group financing had been to create a vehicle for future growth, which meant that Benedictine, at the parent level, could bolster its balance sheet in order to pursue strategic growth opportunities. By repaying over $700,000 of intercompany loans, HJ Sims was able to achieve strategic objectives for the global organization.
- Generate Significant Debt Service Savings: Ultimately the refinancing generated nearly $1.5M of net present value savings which equates to 28.6% of the refunded par amount. Even though CRS increased its outstanding debt by approximately 20%, it will still enjoy nearly $200,000 in annual cash flow savings for the six years.
For more information, please contact: