HJ Sims Market Commentary: Dose and Delivery

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A number of poisons and toxins found on earth or synthetically derived, when administered in a certain dose, cause swift and deadly harm. Financial analysts have been assessing the scale of Washington’s response to the toxic impacts of COVID-19 on the economy.

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An Investment Opportunity: LifeSpire of Virginia

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Residential Care Facilities Revenue and Refunding Bonds
LifeSpire of Virginia

HJ Sims is pleased to serve as senior underwriter for tax-exempt Series 2021 revenue and refunding bonds on behalf of LifeSpire of Virginia, a not-for-profit organization currently comprised of four senior living properties and a foundation committed to supporting its communities through fundraising.

Virginia Baptist Homes, Inc. d.b.a. LifeSpire of Virginia and its Obligated Group currently operate four Life Plan Communities in Virginia with a total of 763 independent living units, 203 assisted living units, 82 memory care units and 227 skilled nursing units. These communities include:

  • The Culpeper—Culpeper, Virginia
  • Lakewood—Richmond, Virginia
  • The Chesapeake—Newport News, Virginia
  • The Glebe—Daleville, Virginia

While each LifeSpire community features a unique setting and benefits, all share a single mission of empowering individuals with choices in purposeful living and a value system that reflects the ideals of faith, servant-leadership, stewardship, peace of mind, innovation and joy.

About the Bonds

  • Series 2021
    • $83,715,000*
    • Fitch Rated “BBB” Stable Outlook
    • Bonds are exempt from Federal Income Tax and exempt from State of Virginia Income Tax
    • Denominations of $5,000
    • Interest will be payable on June 1 and December 1 of each year, commencing December 1, 2021
    • First principal payment: December 1, 2021


  • Acquire The Summit CCRC (IL/AL only), located in Lynchburg, Virginia
  • Refund outstanding bank debt
  • Develop additional independent living cottages at Lakewood and The Culpeper communities


  • Secured by gross revenues and mortgage
  • Proposed Series 2021 Bonds will be secured on a parity basis with existing indebtedness and the 2021 Taxable Loan

 Key Financial Covenants

  • 1.20x Debt Service Coverage Ratio; tested annually
  • 120 Days Cash on Hand; tested semi-annually
  • Event of Default if DSRC is below 1.00x for two consecutive fiscal years

We are currently accepting indications of interest for these tax-exempt bonds with an expected pricing the week of August 2, 2021, and anticipated settlement during the week of August 16, 2021. For more information including risks, please read the Preliminary Official Statement in its entirety. If you have interest in purchasing these bonds, please contact your HJ Sims financial professional as soon as possible.

*Subject to change

No dealer, broker, salesperson, or other person has been authorized to give any information or to make any representation other than those contained in the Preliminary Official Statement and, if given or made, such other information or representation should not be relied upon as having been authorized by the Issuer, the Borrower, or the Underwriters. The information set forth herein has been obtained from the Issuer, Borrower, and other sources that are believed to be reliable, but is not guaranteed as to accuracy or completeness by, and is not construed as a representation of, the Underwriters. The information contained herein is subject to change without notice. Under no circumstances shall this constitute an offer to sell or solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. Any offering or solicitation will be made only to investors pursuant to the Preliminary Official Statement, which should be read in its entirety. Investments involve risk including the possible loss of principal. HJ Sims is a member of FINRA and SIPC, and is not affiliated with Virginia Baptist Homes, Inc.

HJ Sims Provides High-leverage Acquisition Financing for a Utah Senior Living Community


CONTACT: Tara Perkins, AVP | 203-418-9049 | tperkins@hjsims.com

HJ Sims Provides High-leverage Acquisition Financing for a Utah Senior Living Community

FAIRFIELD, CT– HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935, is pleased to announce that it recently provided a high leverage bridge loan for the successful acquisition of a Utah senior living community.

The community has been the most recognized option for seniors housing in its local market and will continue to care for long-time residents that in some cases, come from miles away. Featuring 55 units of assisted living and memory care, the community features mountain views from its hilltop location in a thriving and growing local market.

A regional owner, operator and developer of seniors housing communities, with 15+ years of experience, partnered with Sims to close on the acquisition. The well-established group specializes in assisted living and currently manages over 1,600 units in more than 25 communities across five states in the Mountain West region. The sponsor has deep local knowledge and is well experienced in bringing that local touch to their communities, making it truly feel like home for all of their residents. With a strong understanding, and insight into the major primary markets and growing secondary markets in the region, the group’s local knowledge and operational expertise provides a clear strategy in expanding their geographical reach. This addition to their growing portfolio is an ideal fit.

Seeking a high-leverage acquisition loan and the ability to close under tight timing constraints, the owner/operator approached Sims for the solution. Partnering with Live Oak Bank, Sims provided a high-leverage bridge loan to fund the acquisition, and arranged funds for capital improvements at the property. The first mortgage was structured as an A/B uni-tranche loan, acting as a single debt obligation with one set of loan documents and one monthly mortgage payment.

The high-leverage A/B structure proved to be different from a conventional bank loan, allowing the operator to increase their ownership and avoid involving additional equity partners. The loan was structured with an interest-only period, allowing the group to limit debt service expense over the near term. The loan included an upfront debt service reserve, which allowed the first payment to be pushed out enabling the borrower to focus immediate, out-of-pocket expenses on capital improvements at the property, prioritizing the upgrade of the community.

The “outside-of-the-box” customized financing structure helps the long-time operator preserve strategic

capital for additional growth opportunities and for the support of other communities in their portfolio. A principal and co-founder of the group commented, “Sims not only provided a unique solution that helped us reduce the need for outside investors that would dilute our ownership, but met the timing constraints that were so important to everyone involved.”

Sims excels in providing customized, timely financing solutions for communities across the country, allowing owners and operators to focus on providing quality senior living at their communities.

Financed Right® Solutions—Jeff Sands: jsands@hjsims.com or 203.418.9002 | Brady Johnson: bjohnson@hjsims.com or  949.558.8297 | Curtis King: cking@hjsims.com or 512.519.5003 | Brett Edwards: bedwards@hjsims.com or 512.519.5001

 ABOUT HJ SIMS: Founded in 1935, HJ Sims is a privately held investment bank and wealth management firm. Headquartered in Fairfield, CT, Sims has nationwide investment banking, private wealth management and trading locations. Member FINRA, SIPC. Testimonials may not be representative of another client’s experience. Past performance is no guarantee of future results.  Facebook, LinkedIn, TwitterInstagram.


HJ Sims Partners with Westminster Village as Investment Bank and Swap Advisor Helps Community Accomplish a Refinancing


CONTACT: Tara Perkins, AVP | 203-418-9049 | tperkins@hjsims.com

HJ Sims Partners with Westminster Village as Investment Bank and Swap Advisor Helps Community Accomplish a Refinancing

FAIRFIELD, CT– HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935, is pleased to announce the successful June 2021 Direct Bond Placement in the amount of $60,515,000 for Westminster Village (WVWL) in West Lafayette, IN.

WVWL was established in 1976 and subsequently formed into a not-for-profit Life Plan Community (LPC) in 1981. Located off of Cumberland Park in West Lafayette, IN, WVWL held a long-standing reputation for producing quality services to middle-class retirees. Historically a partner with Purdue University, WVWL’s reputation and mission grew into today’s 346-bed LPC.

Given WVWL’s financial strength, the community sought to take advantage of the low interest rate environment in 2020 to refinance its outstanding Series 2014 tax-exempt and taxable Direct-placement Bonds (Series 2014 Bonds). The incumbent bank proposed a refinancing opportunity that struck WVWL’s management team as an above-market proposal. WVWL engaged Sims to analyze the proposal. Sims was chosen based on experience, market-depth and culture. Sims solicited banking partners based on engagement and initial analysis.

WVWL went into the market seeking to refinance the Series 2014 Bonds. Tied to the Series 2014 Bonds were two swaps that were largely out-of-the-money; WVWL also had a legacy forward-starting swap that was originated in 2010 and became effective in 2020 during COVID-19.

Sims constructed a plan of finance to generate adequate debt service savings despite the expenses associated with refunding the Series 2014 Bonds and terminating all of WVWL’s Swaps. The plan of finance conformed to the terms provided by any potential banking partners via the bank solicitation.

Sims found a banking partner with terms that would offer flexibility and savings for WVWL. The partner offered a proposal that provided material savings. The plan of finance Sims tailored for WVWL generated enough savings to for the community to reconsider a new-money. The $15 million project repurposed some of WVWL’s existing independent living units into assisted living and memory care units that were in high demand on campus.

Sims, in conjunction with the new banking partner, crafted the $60,515,000 plan of finance (Series 2021 Bonds). The financing included the refinancing escrow for the Series 2014 Bonds, the termination of all existing swaps (including the forward-starting swap), and a draw-down facility for the new-money project. The terms provided by the banking partner and the structure formulated by Sims allowed for WVWL to comfortably execute the Series 2021 Bonds without increasing residents’ monthly service fees. This was accomplished via aggressive pricing, a 12-year term, and a 30-year amortization provided by the new banking partner.

Sims closed the Series 2021 Bonds for WVWL via Direct Placement Bonds for the tax-exempt refinancing, a Term Loan for the taxable refinancing, and a draw-down facility for the new project money. After pricing the new swaps for the refinancing debt, Sims captured a taxable interest rate of 3.19% and a tax-exempt interest rate of 2.54% for WVWL. The credit spread for the refinancing portion was 100 bps lower than the incumbent bank’s original refinancing proposal. The new-money project funds were kept variable and will utilize a draw-down feature that allows WVWL to materialize capitalized interest savings. Sims generated a plan of finance that accomplished all of WVWL’s objectives, including $15 million in new-money, without increasing maximum annual debt service against the refunded Series 2014 Bonds, resulting in an efficient capital structure for the community that generated savings and a new product offering for campus residents to enjoy.

“As I was relatively new to my position, the thought of handling a refinancing seemed like a daunting task. Thankfully, after careful consideration our Board of Directors chose to partner with Sims. Sims understands the complex procedures involved with refinancing and made sure to provide extensive education during the entire process. Lynn and Brady took great care in ensuring each step was broken down into understandable components. I truly enjoyed working with Sims and look forward to continuing our partnership for years to come,” said Jessica Argerbright, Director of Accounting and Finance, WVWL.

Financed Right® Solutions—Lynn Daly: ldaly@hjsims.com or 312.505.5688 | Brady Richardson: brichardson@hjsims.com or 240.207.1362.

 ABOUT HJ SIMS: Founded in 1935, HJ Sims is a privately held investment bank and wealth management firm. Headquartered in Fairfield, CT, Sims has nationwide investment banking, private wealth management and trading locations. Member FINRA, SIPC. Testimonials may not be representative of another client’s experience. Past performance is no guarantee of future results.  Facebook, LinkedIn, TwitterInstagram.


HJ Sims Market Commentary: Elbow Grease

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by Gayl Mileszko

We are each born with approximately 270 bones that provide the structure for our bodies. By the time we reach age 21, however, some bones have fused together and the total count falls to about 206. Fifty-four of these bones are in our hand and wrist, twenty-six in each foot, ten in the shoulder and arm. Like other tissues, these bones are all alive. They are comprised of collagen, calcium phosphate, sodium and other minerals, make up 15 percent of our body weight, and come in long, short, flat and irregular shapes. Without us realizing it, each and every one is rebuilt from scratch every ten years. The stapes bone, located in the middle ear, is the smallest and lightest. The femur or thigh bone is the largest. The clavicle or collar bone is the weakest, and the most commonly broken. The sharpest point on the human body is the hinged joint made up of the humerus, ulna, and radius bones, commonly known as the elbow.

Throwing Elbows

Elbows can be devastating weapons. In some martial art styles, they are used in powerful, close-range strikes, typically targeting areas of the skull to knock out an opponent or deliver vicious cuts. In most contact sports, however, their use is prohibited. In ice hockey elbowing results in a two-minute penalty. In basketball, “throwin’ ‘bows” counts as an intentional foul. In the arena of Washington, D.C., elbow bumps became the new and safer form of backslapping when coronavirus first began to spread. Sharp-elbowed politicians, the opposite of legislative pushovers and compromisers, nevertheless abound. On Wall Street, well-heeled titans are often described as having elbowed their way to the top.

Elbow Room…for U.S. Bonds

Since the Great Recession, Main Street, Wall Street, Capitol Hill and the White House have given the Federal Reserve an unprecedented amount of elbow room. But even back in 2008, no one could have imagined how far the Fed would go to intervene in the financial markets these past 16 months. For our own good, the Fed and its European and Asian counterparts have quashed free markets for the foreseeable future. For the good of the country, if not the world, the long-term, multi trillion-dollar U.S. bond buying program is placing a heavy, Fed-sealed lid on interest rates. In Europe, central banks have negative rates prevailing in 9 countries. When inflation is factored in, all sovereign rates – including ours – are negative. In what was once normal times, the Fed would raise interest rates to slow the economy and bring inflation down. That is not happening in the new normal, where crushing many family budgets but the mission of the Fed to Federal Reserve typically raises interest rates to slow the economy and bring inflation down.

Market News This Week

The Fed reports to Congress regularly and the Chair meets with the President on request, at least twice in the last month. So, there is no doubt that the Fed is not independent in its thinking that rates need to remain artificially low for as far as the eye can see. No one needs to give Fed officials the elbow about the need to keep rates suppressed, regardless of how high or for how long prices increase. (Consumer prices rose 5.4% year over year in June, the biggest monthly jump in 13 years.) But in direct contradiction to all the textbook market reactions to soaring inflation numbers, Treasury yields have fallen by nearly 15%. The singular power of the Fed continues to suppress all the highly unsettling inflation signs. We are told that inflation is transitory and we apparently accept this as gospel even when faced with a record U.S. indicator on top of a national debt exceeding $28.54 trillion, and interest on the debt well over $378 billion a year and rising. The federal budget deficit looks like it will easily exceed $3 trillion this year and could quickly double if a new infrastructure reconciliation package is enacted without offsets.

Elbows in the Curves

Investors who lean on the Fed without elbow pads demonstrate a lot less confidence in other public agencies, their data, and pronouncements. Serious new concerns about the Delta variant and the smothering effect which it threatens to have on the U.S. and global economic recovery have led to several market duck-and-runs of late. At this writing, since the start of the month, the VIX has jumped 42%, the Dow has lost 540 points, the S&P 500 is down 39, the Nasdaq is off 229 points, and Bitcoin has fallen 10 percent. Gold us up 2% and, for reasons including the new OPEC+ agreement, oil prices are down nearly 10 percent. U.S. Treasuries have been the biggest beneficiary, and moves in this key market are driving trades in just about every other asset class. While most analysts had expected 10-year Treasury yields to have risen to about 2% by this point in the COVID economic recovery, both the 10- and 30-year yields have fallen 28 basis points across the curve this month alone to stand at 1.18% and 1.81% respectively. Municipals have also made some serious gains across flattening yield curves as the 10- and 30-year benchmarks have fallen 18 basis points in July to 0.81% and 1.32%, respectively. Baa corporate bond yields in ten years are down 16 basis points to 2.85%.

Elbow Macaroni and Municipal Sector News

Pasta elbows which originated in Northern and Central Italy pair well with almost every type of sauce, soup, salad, and stir fry in the same way that municipal bonds meet the needs of those looking for tax-exempt investments, compounding principal and interest, taxable alternatives to corporate and mortgage-based securities, higher yielding fixed income instruments with some of the highest year-to-date returns so far, and/or risk levels on an international scale that generally rank just below those if U.S. Treasuries. More than halfway through the month, tax-exempts are on a path to gains not seen in any other July since 1990. For investors, however, trying to find yield is harder than trying to scratch your ear with your elbow. Last week, the $5 billion calendar included deals coming with below investment grade ratings in 40 years at yields under 3.00%, such as the $68.3 million California student housing deal for BB rated Sonoma County Junior College that came at 2.90%. Among non-rated deals, the Florida Development Finance Corporation brought $113.4 million of bonds for Renaissance Charter School structured with a 2051 maturity priced at par to yield 5.50%, the Public Finance Authority (PFA) sold $41 million of BB+ rated hospital revenue bonds for Carson Valley Medical Center with a 30-year term priced at 4.00% to yield 2.33%, CARTI Surgery Center came with a $40 million deal through the Arkansas Development Finance Authority with 2052 term bonds priced at 4.00% to yield 3.40%, and the St. Paul Housing and Redevelopment Authority sold a $13.7 million charter school financing for Minnesota Math and Science Academy that included 2056 term bonds priced at 4.00% to yield 3.80%.

Elbow Grease and this week in the News/Markets

Bones provide the structure for our bodies in much the same way as muni bonds provide critical infrastructure for our country. This week, investors will see a little bit of every kind of financing for essential projects ranging from water and sewer, to airport, college, hospital, multifamily housing, transit, and elementary and secondary schools. Muni investors will see more than $10 billion of supply, but Bloomberg notes that this will fall short of current demand by at least $12.3 billion. The high yield calendar includes three charter and private school financings: the Build NYC Corporation has a $65.5 million non-rated issue for Shefa School, the PFA is bringing a $6.3 million non-rated deal for the Capitol Encore Academy, and Universal Academy in Michigan plans a $9.7 million BBB-minus refunding. We expect most deals to be priced at high premiums and to be well oversubscribed by the largest municipal bond funds and Exchange Traded Funds. They have taken in $63.4 billion of net assets this year so far, bringing total net assets over $1 trillion for the first time. For borrowers looking to access this incredible market, and for investors looking to maximize yield within their risk parameters, we encourage you to contact your HJ representative. We work for you using proprietary analytics, generous applications of common sense, and lots and lots of elbow grease.

Please contact your HJ Sims representative for information about today’s higher yielding taxable and tax-exempt offerings.

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HJ Sims Market Commentary: Conversions and Reversions

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by Gayl Mileszko

Champions World Resort, a 435-key hotel and conference center in Kissimmee, Florida is undergoing a $14 million redevelopment and will soon re-emerge as a 352 micro studio and one-bedroom market-rate apartment complex intended as affordable workforce housing for employees of Disney and other area resorts. It is one of many hotel-to-housing conversions taking hold in the United States in the wake of the pandemic. The severe stress experienced by hotel operators in 2020 and growing interest in addressing various housing shortages are driving projects such as one in Colorado Springs, where a developer has proposed to turn the city’s second largest hotel, the Hotel Elegante Conference and Event Center, into 642 “attainable” apartments. Real estate owners with distressed assets are finding a number of interested for-profit and non-profit buyers looking to reposition their properties. Repurposing projects involving hotels with in-unit kitchenettes and bathrooms involve behavioral health, multifamily, student and senior housing. An April Jones Lang LaSalle study on hotel conversion activity suggests that the total market value of hotels sold for conversion over the next five years will range between $25 billion and $30 billion.

Hotel and Motel Conversions to Multi-Family, Student, Senior and Homeless Housing

Manchester, Connecticut is just one city that is amending its zooming regulations to allow hotels and motels to be converted to multifamily units. The 22-year old extended stay Homewood Suites by Hilton in Charlotte is planned for conversion into a market rate multifamily community. In Baltimore, an investor group just purchased the Embassy Suites Inner Harbor and plans to convert the 37-story hotel into apartment units. California is using federal stimulus funds for the new Homekey program which has purchased 94 extended stay hotels and motels to convert into permanent housing for the homeless. In New York, the 122-year-old Park 79 Hotel is being transformed into 77 units of affordable housing for seniors. A National Association of Realtors (NAR) survey of commercial brokers conducted between February and March of this year documented 187 hotel or motel conversions in progress, 57% of which were for multifamily housing, 11.7% for temporary or permanent homeless shelters, 11% for senior housing, 7.5% for student housing, and 6.4% for hospital or COVID quarantine facilities.

Reverting From Depressed to Best

Hotels were among the first to see demand drop after the pandemic was declared and lockdowns took effect, but they have been among the first sectors to see demand come back. Average occupancy plummeted to 36.7% in 2020 according to the American Hotel and Lodging Association (AHLA) and the average daily room rate dropped 30% to $92. The NAR reported that midscale, extended stay and short term rental hosts like Airbnb were less impacted than luxury and upscale hotels reliant on business and group travel. But in most markets, hotel occupancy remains well below 2019 levels. The AHLA recently studied 21 of the top 25 hotel markets, categorizing the overall U.S. industry as in a recession and urban hotels as in a depression. As a result of the dramatic drop in business and group travel, primarily in urban areas, revenues are not expected to recover fully until 2023 or 2024; in the case of New York City, a rebound is not expected until 2025. May 2021 revenue per available room (RevPar) fell 22% from 2019 levels; in urban areas RevPar was down 52%. The hardest hit area is San Francisco, which was down 70%, just below Boston, Washington D.C., New York and Chicago. Among the properties that have closed for good are the Marriott Wardman Park in Washington, D.C., the W New York Downtown, the Standard West Hollywood, and Luxe Rodeo Drive. But hotels in Tampa and Miami are another story altogether; these two markets began outperforming in terms of either 2019 occupancy or RevPar in May, and state and local hotel occupancy tax collections are up.

Hotels Built by Bonds

In the municipal bond market, Bloomberg reports that $23.5 billion of hotel tax-backed bonds are outstanding. Strong fiscal management, surplus cash, well-funded reserves and some refinancings have kept nearly all of these projects financed by municipal bonds current on debt service. Many operators and employees received a lifeline from federal stimulus; the accommodation and food services industry received more than $80.3 billion in Paycheck Protection Plan loans in 2020 and 2021. Some municipalities have even gone forward with plans for new hotel projects during the pandemic. Last December, the Virginia Small Business Authority issued $6.5 million of non-rated bonds to assist in the development of the Embassy Suites Oceanfront in Virginia Beach, secured by portions of state sales and use taxes and guest access fees. This past March, the Georgia World Congress Center Authority $439 million of bonds to construct a new upscale convention center hotel with 975 rooms adjacent to the Mercedes-Benz stadium in Atlanta to be operated under the Signia by Hilton brand. Bonds are secured by gross operating revenue generated from the hotel on deposit in a lockbox fund. A similar lockbox feature, however, secures $195 million of the bonds issued for the Hilton Austin Convention Center in 2017 that are now distressed. The hotel, which opened in 2003, had an average occupancy of 22.7% last year and the total net position of the owner and operator decreased by $19.2 million as compared to a net position increase of $12.2 million for the year ended December 31, 2019. Revenues have been insufficient to pay debt service, so there have been draws on six Trustee-held funds to make the last three interest payments; bonds were downgraded to below investment grade in March.

Municipal Bond Market News

In a municipal market with more than $3.9 trillion of par outstanding, Bloomberg reports a total of only 55 distressed and defaulted bond financings with combined outstanding par of $2.45 billion. 51% of these projects have had covenant defaults including taps of the debt service reserve funds while only 27 projects have had actual debt service payment defaults, including the January 1 principal and interest on a Middlesex County, New Jersey bond issued in 2005 for The Heldrich Hotel and Conference Center in New Brunswick. The majority of these deals were troubled before the pandemic struck. But the vast majority of muni bonds are paying timely principal and interest, a true testament to the fundamental strength and resiliency of the municipal market, the rapid and unprecedented federal and state stimulus, the talent and adaptability of project managers, and the essential nature of the publicly financed projects. Given the sudden and severe adversity, the length and magnitude of the shutdowns, and the continuing impacts on municipal sectors including mass transit, senior living, student housing, and parking systems, performance is indeed impressive. Granted, the pandemic is by no means over and financial stress persists on general obligation as well as revenue bond issuers. But Moody’s just reported that none of the bonds it rates had a virus-related default last year; the average municipal default rate between 1970 and 2020 was reported at 0.08%.

Struggling Amidst Economic Recovery

Higher prices for everything from drywall and steel to beef and gasoline place a new layer of financial stress on businesses, governments and nonprofits still struggling in the economic recovery. Last month, inflation ran at the fastest pace in nearly 13 years. The Consumer Price Index just made its largest jump since August 2008 to 5.4%, well above expectations from economists. Core CPI, a measure that excludes the prices of food and energy prices most relevant to Main Street, was up 4.5%, a jump not seen since 1991. Higher prices continue to prevail in the stock market, where major indices are up between 1.4% and 2% since June 30. At this writing, the Dow is up 493 points on the month to 34,996. The S&P 500 is up 86 points to 4,383. The Nasdaq is up 229 points to 14,733. Oil prices at $74.10 have gained 63 cents a barrel, gold at $1,805 is up $33 an ounce, and silver at $26.15 has gained 11 cents. Just about the only sector down so far in July is Bitcoin, off 3 percent at 33,149. Bond prices also continue to escalate in astonishing contrast to almost every prediction made since the start of the year, indeed since 1981 when the 10-year Treasury yield stood at 15.84%. The 10-year yield at this writing is 1.36%, down 10 basis points on the month. The 2-year Treasury has fallen 2 basis points to 0.22%, and the 30-year yield is now below 2%, down 9 basis points in July.

Fear of Missing Out

Last year, borrowers in the global corporate market came in droves to raise as much cash as possible at record low rates for their COVID war chests. Cash holdings increased to an all-time high of $5.2 trillion as companies positioned to sustain themselves through the recession, grab more liquidity than the competition, and forestall any future impediments to market access. Dealogic reported that nonfinancial companies issued $1.7 trillion of bonds in the U.S. last year, nearly $600 billion more than the previous high. By the end of March, their total debt stood at $11.2 trillion, according to the Federal Reserve, roughly half the size of the U.S. economy. The Securities Industry and Financial Markets Association reports that the U.S. Treasury raised $4.28 trillion of net cash last year and the Municipal Securities Rulemaking Board reports $516.9 billion of new issuance in 2020. Year-to-date in 2021, new muni issuance exceeds $238 billion. High yield munis have returned 5.8%, while investment grades are up about 2%. So far this month, the 2-year muni AAA general obligation yield at 0.12% is down 4 basis points, the 10-year at 0.84% is down 15 basis points, and the 30-year benchmark at 1.33% is down 17 basis points. These levels remain extraordinarily attractive to borrowers but for a variety of reasons many have not yet come to market. In the meantime, buyer demand has been insatiable in an environment where talk of higher taxes and signs of low volume in both the primary and secondary prevail. Customers have been adding to muni bond mutual fund holdings for 18 consecutive weeks. Net inflows to bond funds total $51.3 billion this year; inflows to muni ETFs total $12.08 billion. Buyers consistently outnumber sellers: CreditSights reports that the last day of net customer muni sales was on December 22. Unfortunately, there is still not much being offered to these buyers, both institutional and retail. The amount of negative net supply is estimated at $12.3 billion for July. There are $12 billion of coupon payments on top of $41.5 billion of redemptions and called bonds expected this month while the 30-day visible supply totals a mere $13.7 billion.

High Yield Offerings

So far this month, we have seen only a small number of high yield deals. The Massachusetts Development Finance Agency sold $56.7 million of non-rated revenue bonds for Ascentria Care Alliance structured with 2056 term bonds priced with a coupon of 5.00% to yield 4.04%, and the National Finance Authority sold $28.8 million of non-rated companion bonds with a 2056 maturity priced at the same level. The City of Manhattan, Kansas issued $44.8 million of BB+ rated health care facility revenue bonds for Meadowlark Hills that had a 2046 maturity priced at 2.75% to yield 2.82%. The Arkansas Development Authority brought $21.9 million non-rated charter school revenue bonds for Responsive Education Solutions that included a 2052 term bond priced with a 3.625% coupon to yield 3.92%. This week’s $10 billion calendar includes a $68.4 million BB rated California student housing bond issue for Sonoma County Junior College, a $40 million non-rated Arkansas deal for Carti Surgery Center, a $40.8 million BB+ refunding through the Public Finance Authority for Carson Valley Medical Center in Gardnerville, Nevada, a $14 million non-rated PFA deal for Ripple Ranch Recovery Center in Spring Branch, Texas, and a $150 million Ba1 rated deal for the Catholic Bishops of Chicago. Bonds come to market in the context of economic data releases including CPI, producer prices, and retail sales; data showing the resurgence of COVID-19 in many regions; the Federal Reserve Chair’s appearance before House and Senate Committees delivering the semi-annual Monetary Policy Report; the first second quarter corporate earnings of the season; an ongoing OPEC+ deadlock on production policy; and high yield corporate bond yields that hit an all-time low of 3.53% last week.

Please contact your HJ Sims representative for information about today’s higher yielding taxable and tax-exempt offerings.

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HJ Sims Market Commentary: Never Forget

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by Gayl Mileszko

Almost twenty years after the 9/11 terrorist attacks that we promised to “Never Forget” we now have a prolonged pandemic that is still creating indelible memories. Many of us can still name each family member, friend, and colleague affected two decades ago. But today we can recount even more precious people and businesses lost or devastated due to COVID-19. In the financial world, we are keenly aware of the specific sectors of the stock and bond markets that were unexpectedly pummeled in March of 2020; some are thriving, others bankrupt, quite a few rescued with our tax dollars, many still crawling back. In the immediate aftermath of the World Health Organization and presidential declarations, bonds that financed food service companies, cruise lines, airports, hotels, convention centers, sports arenas, hospitals, toll roads, malls, oil and gas and mining companies, all sank in price as lockdowns directly halted revenue streams supporting debt service while causing operating expenses to surge.

Bond News this Week

We still do not know the lifecycle of this virus or its variants but, 15-plus months later, Moody’s and CNN report that the nation’s “Back-to-Normal Index” is at 94%. Summer vacation exuberance may be skewing our perspective, but we will have a much better grip on where things are for work, home and school once September arrives. For now, bond traders report that spreads, the difference in yields when compared to the highest rated credits, have more than completely recovered in most A and BBB range debt while higher yielding securities are also about 94% back to pre-COVID levels. Some sectors like education, hospitals, transportation, turnpikes and toll roads, and single- and multi-family housing still have a little way to go. But the strength of the recovery, and our new perceptions of essentiality, have generally boosted the value of water and sewer, power, utility, airports, and healthcare bonds.

Municipal Sector News

In the municipal sector, most analysts agree that senior living has been hardest hit. Life plan communities, retirement communities, independent living, assisted living, memory care and skilled nursing serve the demographic that has suffered most and facility operators have been at the forefront in the unforgettable fight against the pandemic. Since the onset, top-notch managers have employed every available expert, dedicated staffer, piece of equipment, technology, strategy, tactic, agency, grant, loan, and line-of-credit to keep residents safe. Most caregivers have literally worked around the clock to protect residents who by virtue of age and condition have been most vulnerable to community spread. As a result, fifty one percent of seniors housing properties studied by the National Opinion Research Center (NORC) at the University of Chicago experienced no COVID-19 deaths in 2020. About two-thirds of independent living (67 percent); assisted living (64 percent); and memory care (61 percent) properties had no COVID-19-related deaths, and 39 percent of skilled nursing facilities experienced no related fatalities. Nevertheless, the AARP has reported that more than 184,000 residents and staff of nursing homes and other long-term care facilities have perished as a result of COVID. The share of COVID-19 deaths attributed to long term care facilities reportedly peaked in June 2020, when almost 49% of deaths occurred there. But vaccinations first made available in December 2020 have caused dramatic declines in all the counts. The CDC reports that the rate of deaths per 1,000 residents in nursing homes has dropped from the high of 5.9 in December 2020 to 0.29 as of June 2021, and staff cases have declined from 26.38 to 0.41.

Occupancy Rates in Senior Housing

The latest surveys by the National Investment Center for Seniors Housing and Care (NIC) from June 13 show that, although seniors housing and care occupancy rates remain at historic lows, trends in the percentages of organizations reporting higher occupancy rates continue to improve; assisted living, memory care and skilled nursing are showing new pandemic era highs. Since March, there has been a rising pace of move-ins. The greatest challenge for 94% of these facilities is said to be staff shortages, a problem that affects employers across most industries; they recently posted a record 9.3 million job openings. But the need is particularly acute for certified nurse aides where open positions exceed 200,000.

HJ Sims: History of Supporting Senior Living

HJ Sims underwrote the first municipal bond to finance a long-term care community in 1965 after closely analyzing demographic data and demand projections, and we remain among the biggest supporters of senior living. We have since introduced several innovative structures including entrance fee principal redemption bonds, and have underwritten or advised on more than $27 billion of financings in this space. Including the deals we brought to market, there were only about 63 senior living deals with a combined par value exceeding $3.25 billion in the muni market in 2020. So far this year, we have seen 35 deals totaling $1.73 billion. But the number of new and refunding issues is growing by leaps and bounds as investors recognize the demand for and value inherent in the sector.

Municipal Bond Market News

This week, we are in the market with a $79 million non-rated financing for Benedictine Health System, the tenth largest not for profit senior living provider in the country which owns and operates 21 communities in Minnesota add North Dakota. This transaction is part of a $7 billion new issue calendar that includes seven senior living deals, an array of weekly offerings in this sector that has not been seen for many years. We expect that the $390 million of new money and refunding issues will be several times oversubscribed by institutional and individual investors, a clear sign that tax-exempt buyers highly value this essential public service sector. Featured borrowers cross the credit spectrum and include non-rated Friendship Village in Kalamazoo, Michigan; nonrated Colorado-based Christian Living Communities; BB+ rated Meadowlark Hills in Manhattan Kansas; BBB rated BHI Senior Living of Indiana; non-rated Ascentria Care Alliance in New England; and BBB rated Westminster in Austin which, at this writing just sold with a final maturity in 2055 priced at 4.00% to yield 2.31%.

This Week in the News/Markets

At this writing, the AAA general obligation benchmarks post yields of 0.16% for the 2-year maturity. 1.01% for the 10-year and 1.52% for the 30-year. This compares with Treasury yield curve reflecting yields ranging from 0.25% for the 2-year, 1.47% for the 10-year and 2.08% for the long bond. The 10-year Baa rated corporate bond yield stands at 3.05%. On the month, the Dow at 34,292 is down 237 points while the S&P is up 2% to 4,291and the Nasdaq is up nearly 6% to 14,528. Oil prices are up nearly 11% in June while gold and silver prices have fallen more than 7%.

It’s Time to Review Your Goals

HJ Sims representatives stand ready to assist both borrowers and investors in the senior living space. We are active in the primary as well as secondary markets and our senior bankers and financial professionals welcome your call. We are in a market that continues to be defined by heavy demand, low rates, and high relative credit quality. It continues to favor the issuer, but we are also here relentlessly working for our clients, helping you to define and execute on your income investment strategies. This week, we move into the second half of the year, so it is time to review your goals and needs. Give us a call after the holiday weekend. We note that markets close early on Friday and remain closed on Monday in observance of our nation’s 245th Independence Day. The entire HJ Sims family wishes you a safe, happy, and unforgettable Fourth.

Please contact your HJ Sims representative for information about today’s higher yielding taxable and tax-exempt offerings.

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Market Commentary: SPOCs, SPACs and Specs

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by Gayl Mileszko

The pandemic has led us all to spend more time on line, whether at work or at home, and we find ourselves using many shortcuts in our communications to save on keystrokes, avoid mis-spellings, or to prove that we are somehow in-the-know. The cause of the pandemic itself, the SARS-CoV-2 infection, has certainly seen the highest number of new abbreviations. But in social and business conversations, new emojis have been created to take the place of words and we came up with several catchy acronyms for new behaviors and sentiments. In the financial world, these included Fear of Missing Out (FOMO), Holding On For Dear Life (HODL) and Fear, Uncertainty and Doubt (FUD). There are other initialisms for investment strategies that grew in either popularity or disfavor: Financial Independence/Retire Early (FIRE), Environmental, Social and Governance (ESG), and There is No Alternative to Equities (TINA). The spectacular wizards in our information technology departments became our SPOCs – single points of contact – for the tools many of us have needed to conduct our business and remain productive from home, whether preparing specifications, proposals, recommendations, commentary, or curricula. But when we inevitably became overwhelmed by all the texts, emails, private Bloomberg IB messaging, and cloud meeting requests, we could not help but yank off our new blue light reading glasses, reach for a quarantini, and type some quick pointed replies: UNSUB! (Unsubscribe!), YAM? (Yet Another Meeting?) and N/A (Not Available).

In the bond world, high yield (HY) securities are among the most sought after. Demand is unrelenting for higher yielding corporate bonds where year-to-date volume already exceeds $271 billion. Last week, B2/B rated Royal Caribbean sold five-year bonds at par to yield 4.25% and high yield indices closed at record lows of 3.84%. Weekly inflows into high yield municipal bond funds have hit records and the limited number of new issues with tax-exempt yields over 3% are oversubscribed multiple times. Spectacular price tags accompany offerings in the primary and secondary markets. Boston College bonds with 5% coupons due in 2055 have been trading over $165. On the equity side, the pandemic and the Fed-contrived low rates have spurred a record number of initial public offerings (IPOs). Among them, Special Purpose Acquisition Companies (SPACs) have become the sensational BTR (Buy the Rumor) asset.

For those as unfamiliar with SPACs as they are with cryptocurrencies – other financial instruments that have taken off during the pandemic – SPACs are shell companies with no hard assets or sales that are created for the express purpose of accumulating a war chest of cash to effect a merger, capital stock exchange, asset acquisition, stock purchase, or reorganization with one or more yet-to-be-named private business. Less paperwork is involved, so they tend to provide startups with a fast and often easier path to going public.

Investors in a SPAC are speculating as they have no product, operations or revenue to point to. They initially rely upon the vision, track record, reputation, and networks of the management team or sponsors and the prospects of the industries or businesses it targets. More than a year may pass before the target is even identified. After a SPAC is created and funded, the blank-check firm generally has 18-36 months to identify and merge with an operating company and take it public. If the SPAC fails to complete a merger, the money from the capital raise which has been placed in trust with a third party gets returned to initial investors on a pro rata basis; after any allowable expense allocations and inflation adjustments, returns may be negative. In addition, the entity that created the blank-check firm loses the risk capital it put into the launch deal; this can be in the range of $10 million after all the legal, underwriting, regulatory, insurance and operating expenses. So sponsors are under pressure to quickly identify and arrange a merger. Investors who buy shares before a merger occurs have the option to tender them at a gain if they bought at a discount (or at a loss if purchased at an elevated price), or to become shareholders in the newly combined company

The first SPACs arrived in the 1980’s but their popularity exploded last year as those with cash looked beyond lower yielding and returning investments, willing to take on speculative risk. In 2019, 59 SPACS raised only about $13 billion. But celebrity and other high-profile sponsors including Shaquille O’Neal, Serena Williams, Alex Rodriguez, and even former House Speaker Paul Ryan have recently brought new attention to the class. New companies looking to go public work with investment bankers to explore SPACs as an alternative to an IPO or direct listing. Companies including Virgin Galactic and DraftKings accounted for half of all 494 initial public offerings in 2020, with 248 raising more than $83.3 billion. So far this year, more than 345 companies have raised an average of $313 million each, typically priced at a nominal $10 per unit, for a combined total exceeding $107 billion. The pace of issuance slowed in April when the Securities and Exchange Commission provided guidance that SPACs would need to classify their warrants as liabilities instead of equity instruments. Warrants are derivatives that give an investor the right to buy or sell a security at a certain price before expiration. SPACs are required to file a prospectus and periodic reports with the SEC

Investors interested in learning more about SPACs are to encouraged to don their spectacles and carefully review guidance issued by the SEC and FINRA as well as to speak with an HJ Sims representative. SPACs are generally most suited to ultra wealthy investors with longer investment horizons who are able to tolerate high levels of risk for potentially higher levels of reward. Access to this asset class comes in the form of direct investment in units, common stock, and warrants, or via ETFs. Market prices can wildly fluctuate, and these fluctuations may bear little if any relationship to the ultimate economic success of the SPAC. There is risk that attractive business combinations become scarce as the number of SPACs increase and that the interests of the sponsors may differ from those of investors. See all the risks outlined in any SPAC prospectus before considering an investment.

This week marks the first of summer and the last full week of June and we are online again with our spectacles and magnifying glasses, window shopping during the annual Amazon Prime Days. We are following the voting in New York City’s mayoral primary and, along with 47 million other Americans, we are making our travel plans for July 4. Wall Street is following House committee actions on various antitrust bills and remaining obsessed with the various utterances by members of what many call the Federal “Open Mouth” Committee. Last Wednesday, stocks and bonds weakened as markets reacted to the Fed increasing its inflation projection for the year and bringing forward the time frame for the next rate increases. On Friday, the St. Louis Fed President cited prospects for a hike in rates in late 2022 and three more Fed presidents offered their individual views.

The Fed Chair asked traders to please retire the use of the term “tapering” but it has been in our lexicon since 2013 and the mere talk of talk about paring back the $120 billion a month bond-buying program inevitably leads to a selloff. On Tuesday, Jerome Powell further fueled the speculation in testimony on the Fed’s response to the pandemic before the House Select Subcommittee on the Coronavirus Crisis. It could be a full-time job monitoring the Fed chatter, but our attention is also being drawn to the 49 economic data points being released this week including home sales, first quarter GDP, durable goods, consumer sentiment, jobless claims, manufacturing and services indices, inventories. We will not have June Job Openings numbers until August, but we know from recent releases that they soared to a record 9.3 million in April while about 3.5 million Americans are still receiving weekly unemployment benefits and more than 9 million are unemployed.

As of the open on Monday, U.S. Treasuries (as measured by the ICE BoAML index) have posted a year-to-date return of negative 2.65%. Investment grade corporate bonds are down 1.13%, taxable municipal bonds are up 0.81%, investment grade municipal bonds have gained 1.39%, high yield corporate bonds are up 2.99% and high yield municipal bonds are returning 5.05%. As of this writing, the 2-year Treasury yield has risen 11 basis points this month to 0.25%. The 10-year has dropped 11 basis points to 1.48% and the 30-year is down 18 basis points to 2.10%. The 10-year Baa rated corporate bond yield has fallen 17 basis points to 3.03%. So far in June, the Dow is down 2% to 33.876. The S&P 500 is nearly flat at 4,224. The Nasdaq is up 3% to 14,141. Oil prices have increased 11% to $73.66

This week in the municipal bond market, HJ Sims has a $60.3 million refunding and new money issue for Presbyterian Senior Living. The BBB+ rated bonds are structured with serial and term bonds being issued through the Pennsylvania Economic Development Financing Authority with a final maturity in 2046. In the high yield sector, there is a $91.9 million BB+ rated St. John’s Industrial Development Authority refunding for Vicar’s Landing in Ponte Vedra Beach and a $41.2 million BBB- rated Kentwood Economic Development Corporation refunding for Holland Home in Grand Rapids with a forward delivery for next February. Also on the calendar is a $57 million non-rated Public Finance Authority taxable Texas Infrastructure financing for master planned residential communities in the Dallas-Fort Worth area, a nonrated $27.6 million Michigan Finance Authority revenue and refunding bond issue for Aquinas College in Grand Rapids, an $11.6 million non-rated Louisiana Public Facilities Authority deal for Mentorship STEAM Academy in Baton Rouge, and a $30.1 million Ba1 Seminole County Industrial Development Authority issue for Galileo Schools for Gifted Learning in Sanford, Florida. Please contact your HJ Sims representative for information today’s higher yielding taxable and tax-exempt offerings.

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