Sims Helps Laurel View Village to Reduce Its Interest Rates, Extend Its Bank Loan Term and Raise Additional Funds
Allegheny Christian Ministries d/b/a Laurel View Village (“LVV”) is a not-for-profit Life Plan Community based in Davidsville, PA, approximately eight miles from Johnstown (Western PA). It is currently comprised of a 67 bed personal care unit, a 60 bed nursing unit, 110 apartments and 60 townhouses for residential living facilities located on a 45 acre campus. LVV was originally developed in 1991 as a joint initiative of 15 ecumenical churches in the Johnstown area (Allegheny Christian Services Corporation) and a regional healthcare services provider (Lee Regional Health System via Johnstown Medical Development Corporation) and has expanded in multiple phases over its 25 year history.
The most recent expansion, undertaken in 2008-2010, consisted of the construction of 55 independent living unit apartments together with an additional dining venue and amenities and common areas (“Cambridge Place”). The project was financed in the midst of the economic crisis of late 2008-2009 with a $20 million bank qualified tax-exempt direct bank financing from two regional banks, First Commonwealth Bank and Somerset Trust (the “Series 2008 Bank Financing”). The 2008 Bank Financing was issued through two local issuers, enabling bank qualified status and interest rate savings on the financing.
In early 2016, with interest rates reaching multi-decade lows and LVV’s continued successful operation, including stabilization of the Cambridge Place project several years earlier, HJ Sims identified the opportunity for LVV to explore refinancing (or modification) of the Series 2008 Bank Financing, together with refinancing of an earlier series of fixed rate tax-exempt bonds (the “Series 1998 Bonds”). LVV had also identified a number of capital projects that it desired to finance with external financing as part of the refinancing/modification. With the prospect of a significant reduction in interest rates, the opportunity for extension of the existing bank credit commitment and new capital needs, LVV engaged HJ Sims to explore the specifics of this multi-faceted financing opportunity and, assuming viability, structure and implement the financing with the goal of completing it by the end of calendar year 2016.
Given the positive existing relationship between LVV and First Commonwealth Bank (“FCB”) and Somerset Trust (“ST”), HJ Sims and LVV approached the Banks to discuss their willingness to refinance the outstanding Series 2008 Bank Financing, together with the refinancing of the Series 1998 Bonds and New Capital financing. FCB/ST expressed strong interest in this opportunity given the continued successful operation of LVV and the additional financial benefit that the debt refinancing would provide via both reduction in interest rates and in extending the bank credit commitment to further stabilize LVV’s capital structure.
There were multiple issues to be assessed and successfully addressed in the financing preparation process, including: 1) the most efficient means to implement the transaction, both in terms of financing cost and time to complete, 2) optimum structuring of the transaction given a number of factors, including a) the desire to continue/achieve bank qualified status of the financing to minimize the new interest rate and conform as closely as possible to the terms of the existing debt, b) matching differing terms of remaining loan tenor/credit commitment (2020) and termination date of an existing interest rate swap (2018) and c) achieving LVV’s desired interest rate mix, focused primarily on fixed rate financing and most cost effectively managing the extension or termination of the existing interest rate swaps, 3) most efficiently incorporating the refinancing of the Series 1998 Bonds and New Capital Financing and 4) completing the financing before December 31, 2016, LVV’s fiscal year end and enabling maximum flexibility for achieving the bank qualified status referenced above.
Acting as Structuring Agent and Co-Swap Advisor (with Kensington Capital Advisors), HJ Sims served in a coordinating role in assessing the various issues and advancing the financing process and worked effectively with LVV Management, FCB/ST and representative Legal Counsel to successfully complete the financing on a timely basis.
The existing debt, comprised of the Series 2008 Bank Financing and Series 1998 Bonds, was addressed via a combination of a Debt Modification…for the Series 2008 Bank Financing and Refinancing…for the Series 1998 Bonds. This was determined to be the most efficient means of achieving LVV’s transaction goals, in particular, reducing the interest rate on both components of existing debt (and the New Capital Financing) along with providing a credit commitment (tenor) that was as long as possible, in this case, 12 additional years (2028). This also enabled savings in financing costs, particularly legal fees that would have increased if the Series 2008 Bank Financing required a full Refinancing and shortening the time required to complete the financing.
HJ Sims worked closely with Bond Counsel, Eckert Seamans, as Eckert conducted extensive tax analysis required to assess the financing structuring options, including compliance with Federal tax regulations to preserve/achieve Bank Qualified status. This included preparing several iterations of financing sizings (and allocations of uses and sources of funds) together with coordinating multiple discussions with LVV and the full Working Group, including FCB/ST, Bank Counsel and LVV Corporate Counsel along with the two issuers and counsel
LVV sought the use of fixed (vs. floating) interest rates on the majority of financing, given the historically low level of interest rates and an aversion to any significant increase in variable rates. Accordingly, a key component of financing structuring and implementation involved an assessment of interest rate risk management and hedging strategies. This was focused on the most cost effective approach to addressing the existing interest rate swap on the Series 2008 Bank Financing, which had two years remaining until scheduled termination, coupled with the hedging of interest rates on the refinancing of the Series 1998 Bonds and the majority of the New Capital Financing. LVV ultimately opted to terminate the existing swap and enter into new swaps for the modification of the Series 2008 Bank Financing, refinancing of the Series 1998 Bonds and a portion of the New Capital Financing – given the staged closing of the transaction and desire to fix interest rates simultaneously, this involved the combination of a current starting swap for a portion of the debt and a forward starting swap for the balance of debt.
With HJ Sims’ leadership, the cooperation of LVV and constructive work of FCB/ST and the experienced Working Group, who had worked together successfully on several prior transactions, the transaction was fully documented and all financing committed by the December 31st target deadline; a portion of the financing closed prior to December 31st and the balance closed in mid-January 2017.
This enabled LVV to fully accomplish its financing objectives including: 1) realizing a significant reduction in interest rates and debt service, enhancing operating profitability and cash flow, 2) extending the duration of the credit commitment of its bank financing for 12 additional years (and matching the term of the credit commitment with the term of its interest rate swaps) and 3) raising additional financing to fund several important components of its capital budget. Further, LVV was able to finalize the transaction prior to the close of its 2016 fiscal year.
Jim Bodine and Mack Welch represented HJ Sims on this transaction. Jim Bodine has served as investment banker to LVV for its 25 years of operation, including pre-development planning and start-up project financing in 1991, together with subsequent expansion financings and refinancings completed over the past two and a half decades.
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