Refinancing Provides Savings, Covenant Relief for Life Plan Community in Texas
“The July 2016 refinance of Carillon bonds, as planned, resulted in significant capital investment and a stronger financial position. For this third financing, Sims performed! Our experience was good communication, responsiveness and professionalism; it matched completely our expectation.”
– Scott Wynn, Executive Director, Carillon
Carillon is a non-profit Life Plan Community located in Lubbock, Texas. The community is located on 25 acres adjacent to Texas Tech University and consists of 256 independent residential units, 45 assisted living units and 140 skilled nursing beds (including 39 operated as memory care units). Carillon commenced operations as a retirement community in 1975. In 1999, HJ Sims underwrote a bond issue to fund the construction of 84 additional independent living units and a healthcare center. In 2005, HJ Sims completed a subsequent tax-exempt bond issue to refinance Carillon’s Series 1999 bonds and fund certain renovations and improvements throughout the campus. Carillon has been managed by Life Care Services since 2003 and has experienced average occupancy over 90% in the independent and assisted living units over the past five years. Despite maintaining high occupancy at the community, Carillon has struggled to maintain liquidity and fell out of compliance with its liquidity covenant in 2014. As the campus aged, Carillon invested heavily in capital projects, including the addition of 13 new independent living villas and the renovation of space previously leased to a third party hospice provider into a new 20 unit post-surgical rehab center.
Engaged by Carillon to refinance its outstanding debt, HJ Sims worked with the Board and Management to:
- Reduce Carillon’s overall cost of capital
- Reduce annual debt burden and improve operating cash flow
- Fund needed capital improvements
- Provide covenant relief and flexibility
HJ Sims sold the 2016 bonds to a wide range of investors, including 19 different institutions and more than $7,000,000 sold by HJ Sims’ Income Advisors to HJ Sims’ Private Client Group customers. The outcome of the refinancing accomplished the following in keeping with the original objectives:
- Arbitrage Yield of 4.41%, down from an average cost of capital of 6.61% on the prior bonds
- Reduction in annual debt service by approximately $1,060,000
- Provided $5,000,000 to fund capital improvements from proceeds of the bond issue, allowing Carillon to improve its liquidity position by funding costs that would have been paid out of operating cash
- New bond documents have more flexible covenants, including lowering the liquidity requirement from 150 days to 100 days in the first fiscal year, increasing to 120 days thereafter
- Released over $2,700,000 from Trustee-held funds under the 2005 bond issue to unrestricted cash.
HJ Sims closed on the $58,870,000 tax-exempt bond issue on July 22nd, 2016. On a Net Present Value basis, the refunding saves Carillon approximately $7.98 million, or 14.6% of the par amount of the refunded bonds. On an annual basis, the refinancing saves Carillon over $1 million per year and also provides $5 million to fund capital improvements, which puts Carillon in a strong position to improve cash flow and generate liquidity over the near future.