HJ Sims Partners with Good Shepherd Village at Endwell to Refinance Bank-Held Bonds and Provide Funds for Community Improvements
“HJ Sims was instrumental in the refinancing of Good Shepherd Village at Endwell’s existing debt. Andrew Nesi coordinated and structured a bond issuance that allowed us to refinance our existing debt at historically low interest rates as well as including $15 million for capital improvements to ensure we are prepared for the next generation of retirees. As always HJ Sims concentrated on meeting our current needs while preparing for our future ones.”
– Michael Keenan, President and CEO, Good Shepherd Communities
Good Shepherd Village at Endwell, Inc. (the “Community”) is a fee-for-service continuing care retirement community located in Endwell, New York approximately 8 miles west of Binghamton consisting of 74 independent living cottages, 80 independent living apartments, 16 assisted living units, 16 memory care units and 32 skilled nursing beds. It is the only fee-for-service CCRC in the state licensed by the Department of Health under Article 46-A of the State Public Health Law.
The Community is part of Good Shepherd Communities, an organization that traces its roots to 1870 in the Binghamton area. In addition to the Community, the organization provides a wide variety of services to seniors and disabled people throughout the region.
HJ Sims is pleased to be a financial partner with the Community since 2008 when we underwrote the start-up construction financing totaling $64.7 million. In 2015, we also advised the Community on refinancing $47.3 million in outstanding debt through a bank placement of tax-exempt bonds.
HJ Sims is constantly on the lookout for opportunities for our clients to reap the benefits of historically low interest rates. Low municipal bond interest rates have provided numerous opportunities for our clients to refund outstanding bank debt to lock-in interest rates and eliminate refinancing and interest rate risk inherent in bank financing. The current environment provided an attractive opportunity for the Community to refund the 2015 bank-held bonds.
The 2015 bonds had a fixed interest rate of 2.70% through 2025, which would then need to be renewed by the bank or refinanced. Indicative interest rates for a municipal bond issue with a 20-year maturity were lower than the bank rate expiring in 4 years. Additionally, the Community would benefit by removing restrictive financial covenants and requirements to maintain large cash balances with the bank.
The Community has enjoyed high occupancy levels since opening in 2009 and wanted to invest in capital improvements to bring the services and amenities up to modern standards. HJ Sims worked with management to evaluate several options to ensure that debt service coverage and the cash to debt ratio would remain at reasonable levels even with the additional borrowing. Ultimately, management decided to borrow an additional $15 million to fund capital improvements.
HJ Sims also reviewed the Community’s potential to obtain a credit rating on the new bond issue. We compared the Community’s quantitative and qualitative performance against Fitch Ratings’ new rating criteria and concluded the Community was a good candidate for a rating. Working with management, we assisted in the review process with Fitch, ultimately obtaining a BBB- investment-grade rating.
To limit the increase in debt service due to the additional debt, HJ Sims structured the bond issue to postpone repayment of the new money portion until after the existing debt was repaid in 2041. The financing included less restrictive covenants, freedom to invest cash reserves, as well as a 6-year call feature with a premium of 103% which improved the Community’s operating and capital structure flexibility.
On December 8, 2021, HJ Sims closed the $51,320,000 Series 2021 bond issue. The financing included both serial and term bonds, with the 2047 term bond (the final maturity) carrying 4.00% coupon and a 2.50% yield. The refunding portion of the financing (maturing in 2041) carried a yield of 2.35%, lower than the existing 2.70% bank rate. By wrapping the $15 million new money portion of the financing around the refunding portion maximum, annual debt service increased by only $592,000, limiting the impact to the Community’s debt service coverage.
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