HJ Sims Structures and Sells a Unique Financing Solution to Position Clark-Lindsey Village for the Future
“HJ Sims has been a key strategic partner in our repositioning project. This project is the largest strategic initiative our community has ever undertaken and it includes multiple phases over several years. HJ Sims provided education to our team and our board along the way, helping us to understand the markets and the risks. They got to know our team well and also our project in great detail, including attendance at early design meetings. Throughout the planning stages, they presented multiple financing strategies so that we were ready to respond to varied market conditions. As we neared the end of financing plan, volatility in the markets did indeed threaten the project, but HJ Sims led the team to an early close date, resulting in a successful closing and substantial overall savings. We couldn’t be happier with HJ Sims as our financing partner!”
– Deb Reardanz, President and CEO of Clark-Lindsey
Clark-Lindsey is a not-for-profit, single-site life plan community located in Urbana, IL, the home of the University of Illinois – Fighting Illini. The organization was established in 1978 and is one of eight communities in the nation to have earned the designation as a “Center for Successful Aging.” Currently, the campus offers 147 units of Independent Living; 12 units of Memory Care; as well as 105 beds dedicated to Skilled Nursing. Just as the town of Urbana has a dedication to the Fighting Illini, Clark-Lindsey has a management team dedicated to repositioning the community for the future of senior living care. The management team, in conjunction with the Clark-Lindsey’s board, designed a master plan to reimagine the existing campus in three distinct phases. In 2021, HJ Sims closed the initial phase via a taxable line of credit to construct 8 independent living villas. In 2022, Clark-Lindsey Village chose to partnered with HJ Sims to assist with the financing for Phase II. Phase II encompassed a takeout out all of CLV’s debt (including the short-taxable line from Phase I) and was poised to fund the construction of a 3-story building to contain 38 assisted living units (a level of care previously not available on the campus), 26 units of memory care, underground parking, and a covered connection to the main campus. Additionally, Phase II sought to significantly reduce the community’s exposure to traditional skilled nursing by eliminating several existing healthcare wings (72 beds in total) and renovating an existing Green House home. The Green House Home would then be positioned to accommodate 12 skilled nursing residents. Following the completion of Phase II, Clark-Lindsey Village’s unit mix will offer 155 independent living units, 38 assisted living units, 26 memory care units and 45 comprehensive skilled nursing beds.
Clark-Lindsey Village sought a financing vehicle which presented draw-down features for the construction portion of the project. This would allow for the community to pay for the construction of Phase II as it progressed. Moreover, the organization desired a structure which would not over-burden the existing operating model nor the projected operating model once Phases I and II were stabilized. Finally, Clark-Lindsey Village needed a financing structure for Phase II that would work in conjunction with their expected needs for Phase III – and not stand in the way or delay the next phase.
HJ Sims explored several structures and analyzed various scenarios for the optimal solution. Ultimately, HJ Sims created a financing scenario which utilized a hybrid between traditional bank debt and fixed-rate bonds. With bank debt in place, Clark-Lindsey Village could minimize the amount of funded capitalized interest by drawing on the bank loan when construction monies were needed. In addition, the 35-year term on the fixed-rate bonds provided debt service coverage relief throughout the life of the financing. The fixed-rate bonds had a principal amortization which was largely deferred during the period which the bank debt was paid down which further bolstered debt service coverage to Clark-Lindsey Village’s operations. Furthermore, by refinancing the existing debt with fixed rate debt, and extending the maturity the fixed-rate bonds provided debt service capacity for the project (and lessened the project’s impact on operations).
After a conducting a selective (yet wide reaching) bank solicitation, HJ Sims received term sheets for the project from multiple institutions. Clark-Lindsey Village and HJ Sims settled on a bank solution for this piece of the capital stack which provided a 30-year amortization and covenants which would conform to those drafted for the fixed-rate bondholders. The banking partner was also willing to accept formulaic additional indebtedness tests for future phases of Clark-Lindsey Village’s master plan.
A plan of finance and a working group had been assembled in early-February 2022. As the financing progressed with a projected closing date of July, Russia invaded neighboring-Ukraine on February 24, 2022. The invasion, in conjunction with inflationary concerns and supply-chain constrains, shook markets into volatile cycle. Furthermore, primary offerings in the senior living space were selling at deep discounts (high interest rates) with several offerings failing to clear the market. These macro-economic factors forced HJ Sims to routinely analyze the impacts of interest rates and construction costs on the long-term viability of Phase II.
Despite market conditions, HJ Sims pressed forward with the plan of finance. The team opted to expedite the financing by pushing up the projected closing date. The earlier date would allow Clark-Lindsey Village to procure (often delayed) building materials and avoid any additional interest rate increases imposed by the Federal Reserve. An immense effort was undertaken to meet the projected date, as the working group was assisting with a corporate structure re-organization which would reshape the entire corporate organization of Clark-Lindsey Village and its affiliates. With confidence in Clark-Lindsey’s management team, the assembled working group, as well as its sales and trading team, HJ Sims proceeded to target the revised closing date. Sims and the greater working group were able to draft all of the pertinent documentation, market an offering statement, and sell the fixed-rate bonds ahead of schedule on June 9th. The bonds were successfully over-sold with favorable pricing when compared to comparable senior living transactions entering the primary markets.
On June 22nd, two weeks ahead of schedule, HJ Sims closed the transaction. The final terms of the financing included a blended interest rate of 5.23%, 35-year term for the fixed-rate bonds with a 5-year optional redemption feature, 30-year amortization for the bank debt, and flexible covenants for the Community to realize future phases of the master plan. Furthermore, the amortization structure allowed for additional debt capacity to contemplate future phases in the years to come. Overall Clark-Lindsey was able to refinance all of its existing debt, complete a corporate reorganization, finance Phase II, and establish a capital solution which sets the stage for the remaining phases of the master plan to come to life.
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