HJ Sims Lead Bookrunner on Kahala Nui Land Purchase Transaction to Help Secure Community’s Future
“Purchasing the land is one of the most significant events in our 20-year history. Gaining ownership of the land under our facilities is an important step in securing our future and ensuring that we can continue to service our residents and the community with excellence. Lynn Daly and the HJ Sims team brought the expertise and creativity that we needed to secure the financing of the land purchase and to refinance existing debt. Through the twists and turns of a rapidly changing market, they provided guidance, and helped us adjust, stay on track, and achieve an excellent outcome.”
Craig Courts, President and CEO, Kahala Nui
Partnered Right®
Opening in 2005, Kahala Senior Living Community, Inc. (“Kahala Nui”) is located in Honolulu, Hawaii and operates 270 independent living units, 40 assisted living units, 22 memory support suites, and 60 skilled nursing beds. Kahala Nui is currently rated A+ (Stable Outlook) by Fitch Ratings. Up until the Series 2025 financing, Kahala Nui’s land has been subject to a ground lease from the Roman Catholic Church in the State of Hawaii (“Church”).
Structured Right®
The opportunity for Kahala Nui to purchase its land from the Church carried a significant price tag, but the ability to own the land the community sits on in a state like Hawaii as well as better control its future are critically important factors to the board and management team. While the ground lease had a few decades remaining, renewal uncertainty would start to impact sales and marketing efforts for its life care contracts as soon as the 2030’s.
In addition, Kahala Nui’s prior debt included bonds directly purchased by a national commercial bank (the “Bank Debt”). While the rate put in place prior to the recent rate hike cycle was relatively low, when combined with the debt service associated with the land purchase, the frontload principal amortization for the Bank Debt resulted in uneven cash flows. Combined with challenges securing additional debt approvals, Kahala Nui determined that the existing debt would be refinanced with the Series 2025 Bonds.
The final structure of the Series 2025 Bonds included the land purchase, refinancing of prior debt, and funding of certain capital expenditure needs, with the final debt service schedule providing for level debt service for the next 37 years.
Executed Right®
Kahala Nui had its Fitch A+ rating affirmed on the strength of its balance sheet and consistent operating performance, indicative of a solid credit to reintroduce to the municipal bond market after being away for several years. Leading up to pricing, Kahala Nui’s management team and the Sims team progressed through a land sale process with uncertain timing and restrictions around public disclosure of the sale that worked to contract the length of time available to market the bonds and close on the financing. In part due to these communication restrictions, residents of the community did not have a comprehensive understanding of the reasons for the transaction, and the management team spent substantial time educating the residents to provide them comfort on the greater leverage position Kahala Nui was taking on. The Sims team was instrumental in managing the financing through these pressures to achieve a successful pricing and closing.
Financed Right®
The Series 2025 Bonds with par amount totaling $135,665,000 were successfully priced on January 8, 2025, in unfavorable market conditions, with the 30-year AAA municipal bond benchmark rising by as much as 10 basis points throughout the day. Despite the rise in benchmark rates, the underwriting team held firm on most maturities and limited the yield increases to less than the underlying benchmark changes. In addition, optional call provisions allowing for refinancing in seven years provide flexibility for the organization in the near future.
Lynn Daly
(312) 505-5688
Nick Roberts
(469) 371-3946
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