Low Interest Rate Refinancing Provides Funding
“We’ve enjoyed a long-standing relationship with HJ Sims and were pleased it continued with the refinancing for Crane’s Mill. The Sims team was of great assistance to us throughout the process, from the initial RFP through closing, proving to be invaluable in smoothing the way after we experienced a few bumps in the road on the day of closing. Overall, we could not be more pleased with the outcome.”
– Jennifer Cripps, Chief Financial Officer, Lutheran Social Ministries of New Jersey
Background
Lutheran Social Ministries at Crane’s Mill is a member of Lutheran Social Ministries of New Jersey, an organization with origins dating back to 1904 that provides a broad range of programs and services at 20 locations across the state to more than 6,000 individuals. HJ Sims has had the privilege of serving as its investment banker for 20 years. Crane’s Mill is a Life Plan Community with 281 independent living units, 48 assisted living units, 18 memory support assisted living units and 66 skilled nursing beds located on a 48-acre site in West Caldwell, NJ. The outstanding debt consisted of fixed rate bonds and letter of credit backed variable rate bonds. The fixed rate bonds are rated BBB (Stable) by Fitch.
Challenge
The existing relationship bank was willing to extend the letter of credit supporting $10.1 million in variable rate bonds for one year periods. In addition, the interest rate swap expired in 2013, and the short term letter of credit limited derivative options.
For many years, Crane’s Mill was required to comply with financial covenants and reporting requirements that differed between the bank and the bonds. Management was looking to reduce this burden by having a single set of covenants, reporting that mirrored the existing bonds and eliminated certain covenants required only by the existing bank financing.
Execution
Working with management, HJ Sims prepared a comprehensive request for financing and solicited term sheets from numerous banks familiar with Lutheran Social Ministries of New Jersey and Crane’s Mill. Several competitive term sheets were received that met the overall objectives of management. The indicative interest rates were very favorable, and the decision was made to increase the size of the issue to permit renovation to the community health center and fund financing costs.
Results
On October 29, 2015 Crane’s Mill borrowed $16.25 million, structured as bonds, which were purchased by a regional financial institution. The financing accomplished the following in keeping with the original objectives:
- Long Term Financing – The new bonds were purchased for a 10 year period.
- Low Fixed Interest Rate – Crane’ Mill entered into an interest rate swap with the financial institution that fixed the interest rate at 2.57% for the term of the financing.
- Uniform Covenants – The prior bank covenants were eliminated, including an occupancy covenant. Covenants were limited to debt service coverage ratio and cash to debt ratio.
- Additional Proceeds – $6.4 million in additional proceeds provided Crane’s Mill the ability to begin renovations on the community health center and pay finance related costs without using existing reserves.
For more detailed information on how Crane’s Mill was Financed Right® by HJ Sims, please contact:
Andrew Nesi
(301) 424