HJ Sims Partners with King’sBridge Retirement Center to Refinance Outstanding Debt, Finance Capital Improvements and Improve Liquidity via Two Bank Loans
“King’sBridge has been very pleased to partner with Tom Bowden and the team at HJ Sims. They put together our initial strategy and designed a creative approach to secure favorable financing terms within a timely schedule. Their plan and guidance not only strengthened our financial position but also provides for flexibility for further expansion. HJ Sims oversaw the execution with excellence, as they always do, which we have been accustomed to for over 30 years.”
– Kevin Shaw, Executive Director, King’sBridge Retirement Center
King’sBridge Retirement Center (the “Community”) is a rental senior living community founded in 1985 in northeast Atlanta, Georgia. The retirement community consists of 142 independent living units, 48 assisted living units, and 13 memory care units.
In late 2021, HJ Sims was hired to assist the Community in reviewing refinancing options for its construction loans and taxable mortgage. Sims originally assisted the Community with its start-up financing in the mid-1980s.
When Sims was hired, the Community had two taxable construction loans and its long-term taxable bank loan outstanding. The two construction loans were in a variable rate mode and were due in December 2021, while the long-term taxable loan had an interest rate of 4.54% and a put date in 2026. Sims worked quickly with the Community’s existing lender, Truist, to extend the maturity of the construction loans to March 2022 to provide time for a long-term refinancing.
Next, Sims worked with the Community to determine a plan of finance for refinancing the construction loans and the mortgage. In addition to the refinancing, the Community wanted to borrow $1.2 million in new money to finish ongoing capital improvements on the campus. Further, to finance the ongoing capital improvements, the Community had been using its cash reserves and construction loans. By late 2021, the Community’s cash position was at a lower than normal level. Given the low interest rate environment, Sims proposed borrowing an additional $2 million to reimburse the Community for its previous capital expenditures.
Given the expectation in early 2022 of rising interest rates, Sims and the Community weighed the pros and cons of completing a bank solicitation to ensure the lowest cost of capital vs. negotiating directly with the Community’s existing lender to save time. Ultimately, the Community opted to negotiate directly with Truist to ensure a timely closing. In the event the terms of the refinancing loan were not competitive, a full solicitation would have been completed.
Moreover, Sims and the Community reviewed both tax-exempt and taxable structures for the financing. While a tax-exempt structure offered the lowest cost of capital, the Community would not need to borrow through a conduit issuer with a taxable structure, providing a more efficient closing. Despite the longer financing timeline, the Community sought a tax-exempt structure due to the significant interest expense savings.
Sims and the Community received a competitive term sheet from Truist in early January. Nevertheless, Sims worked to improve the terms of the loan by pushing for a ten-year commitment (over the initial seven-year term), a higher authorized loan amount, and a lower commitment fee. To assist with cash flow as the Community recovers from the pandemic, Sims structured the loan with a 25-year amortization.
Upon signing the term sheet, Sims and the Community worked quickly to set up the working group and kick-off the issuer and due diligence processes. Through the due diligence process, bond counsel determined that the Community could not reimburse itself for previous capital improvements with tax exempt bonds due to the lack of a reimbursement resolution. Sims pivoted to a revised debt structure that included a small taxable loan to provide the needed liquidity. This loan would be amortized first to limit the interest expense resulting from the higher taxable rate.
Additionally, Sims provided swap advisory services to the Community to assist with entering into the two swaps. Sims proposed a fully-hedged structure due to the anticipated interest rate increases proposed by the Federal Reserve over the next two years. Sims’ swap advisory services also included board education sessions to ensure the Community understood the risks and benefits of entering into swaps.
On March 9, 2022, King’s Bridge and Truist closed on the $9,950,363 Series 2022 Bonds and the $2,169,179 taxable loan. The tax-exempt swap rate through 2032 was 2.951%, while the taxable swap rate through 2028 was 3.566%. Both rates were below the existing taxable mortgage rate of 4.54%, resulting in significant interest expense savings.
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