Benedictine Health System (July 2021)

HJ Sims Executes Complex $132.4 Million Obligated Group Financing for Benedictine Health System

“For our first time working with HJ Sims, we couldn’t be happier with the results. The Sims Team committed the time to understand Benedictine’s strategic goals and dug into our complicated capital structure to develop a plan to accomplish them. The Sims team did a fabulous job of helping us craft our Benedictine story that created a lot of excitement from banks and bond funds which culminated in financing terms that were better than we ever anticipated. This financing will definitely be a key enabler of Benedictine achieving its strategic goals.”

– Kevin Rymanowski, Sr. Vice President – Finance/CFO

Partnered Right®

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.

Historically, most of Benedictine’s affiliates had been financed on a standalone basis, resulting in 36 series of outstanding debt for 19 different borrowers. The various series of debt were held by 8 different banks or servicers with inconsistent terms, covenants, and reporting requirements. As part of its strategic finance goals, Benedictine’s Board and executive leadership team sought to actualize a capital framework that would ensure its ability to pursue growth opportunities, transform its service mix, and reinvest in its existing campuses. In August of 2020, HJ Sims was engaged to spearhead this complex undertaking.

Structured Right®

HJ Sims began by constructing an initial Obligated Group that would provide the foundation for Benedictine to realize its finance goals. In order to do this, HJ Sims created and utilized a multi-faceted decision matrix that considered a number of factors specific to each affiliate and its outstanding debt. Ultimately, 21 senior living communities, 14 in Minnesota and 7 in North Dakota, were selected for the Obligated Group. These communities collectively include 153 independent living units, 811 assisted living units, and 1,242 skilled nursing beds.

Once the Obligated Group was identified, HJ Sims focused on finalizing key provisions for the Master Trust Indenture (“MTI”) that would give Benedictine’s organizational and capital structure the flexibility it needed for the future. Specific attention was given to terms such as additions and withdrawals from the obligated group, system fees and asset transfers, and additional indebtedness tests.

In addition to structuring the Obligated Group and crafting key MTI provisions, HJ Sims worked to determine the appropriate debt structure. Because most of the debt to be refinanced was bank debt, a shorter 20-year amortization was selected in order to avoid too great an extension of the debt’s weighted average maturity. In addition, taxable debt was selected to refinance the debt allocable to the North Dakota communities in order to avoid the need to use two issuers and to give Benedictine the flexibility to repay the debt as certain strategic initiatives may occur in the future.

Executed Right®

With the Obligated Group and overall debt structure confirmed, HJ Sims worked with bond counsel to secure host approval and execute joint powers agreements among 20 municipalities or issuers throughout the state of Minnesota.

Leveraging Benedictine’s reputation and strong banking relationships, HJ Sims went out to a broad group of commercial lenders to solicit term sheets for both the taxable and tax-exempt debt. Given the importance of the MTI provisions, HJ Sims requested that proposing lenders agree to the same terms as prospective bondholders without a separate financing agreement. HJ Sims also required that proposing lenders underwrite the loan such that the real estate was secured as an abundance of caution and appraisal and LTV requirements would not apply. Ultimately, four banks submitted proposals, but for various strategic reasons HJ Sims and Benedictine elected to work with just two lenders with whom Benedictine had longstanding relationships.

In addition to securing bank financing, HJ Sims also distributed long term fixed-rate bonds to the public market. Although the Obligated Group had been unable to qualify for an investment grade rating, HJ Sims ensured that the underlying credit strength of the operations was understood by investors. This coupled with strong individual investor participation from HJ Sims’ Wealth Management clients, resulted in significant oversubscription and the ability to reprice the bonds well below initial price expectations.

Financed Right®

On July 15, 2021 HJ Sims closed on the $132,405,000 financing, which consisted of $73.405 million of tax-exempt fixed rate bonds, $38.3 million of tax-exempt bank bonds, and $20.7 million of taxable bank debt. In keeping with the original objectives, the financing accomplished the following:

  • Actualize a Streamlined Capital Structure: By bringing together 21 communities into an obligated group, 24 series of outstanding debt were repaid by 4 new series of debt. These 4 series of debt all have the same covenants and reporting requirements which greatly simplifies workload for Benedictine’s finance team. In addition, the elimination of the LTV requirement saves the organization on the costs of appraisals for years to come.
  • Create a Vehicle for Future Growth: Provisions in the MTI will allow Benedictine, at the parent level, the resources it needs to pursue growth opportunities outside the obligated group. In addition, by bringing the 21 communities together, their ability to access debt capacity for future expansion projects was greatly enhanced.
  • Establish a More Secure Debt Profile: Since most of the refunded debt was bank debt that adjusted every five years, Benedictine was exposed to ongoing interest rate re-set and put risk. By fixing the rate to maturity on 55% of the new debt and securing 10 years terms from the banks, Benedictine’s exposure to interest rate and put risk was greatly reduced. Even with the increase in fixed rate debt and an extension of the weighted average maturity, Benedictine was able to achieve a nominal amount of net present value savings and reduce its average coupon from 3.80% to 3.50%.
  • Fund Capital Improvements: Although Benedictine had no large capital projects planned, the financing presented an opportunity to borrow an additional $10M for routine capital expenditures across a number of its campuses. Even with the increase in debt, annual debt service decreased over $2.0M by structuring for level debt service. By borrowing for capital expenditures that would have been funded by operating cash, Benedictine will be in a better position to build its liquidity in the years ahead.

For more information, please contact:

Lynn Daly


Testimonials may not be representative of the experience of other clients. Past performance is no guarantee of future results