Lifespire Partners with HJ Sims to Pursue, Finance Important Acquisition
“HJ Sims has been a great partner throughout the process of welcoming The Summit to the LifeSpire family. They strategized with us during the competitive bid process and designed a creative plan of finance that will strengthen our financial position and flexibility as we continue to grow. With the help of the Sims team, we were able to maintain our BBB rating and achieve financing terms that exceeded our expectations.”
– Jonathan Cook, President & CEO, LifeSpire of Virginia
LifeSpire of Virginia (“LifeSpire”) consists of four owned and operated life plan communities across the Commonwealth of Virginia, as well as the Virginia Baptist Homes Foundation. The Obligated Group currently consists of four life plan communities: The Chesapeake (Newport News, VA), The Culpeper (Culpeper, VA), The Glebe (Daleville, VA), and Lakewood (Richmond, VA). All four communities provide the full continuum of care to its residents, from independent living to skilled nursing.
Shortly following the Series 2021 financing, LifeSpire will acquire the independent living, assisted living, and surrounding land of The Summit, located in Lynchburg, Virginia. Upon acquisition, The Summit will join the Obligated Group.
HJ Sims was engaged in early 2021 to provide buy-side advisory services to acquire The Summit. After successfully guiding LifeSpire through a multi-round competitive bid process, efforts shifted to determining the plan of finance for the acquisition with the following key objectives: 1) provide for sufficient funds to purchase The Summit, 2) maximize LifeSpire’s flexibility within its capital structure for future organizational growth opportunities, and 3) accomplish these objectives while minimizing cost of capital.
In order to effectuate the acquisition, Sims recommended a finance plan that included substantial reimbursement of recent capital expenditures associated with cottage expansions at Lakewood and The Culpeper (the “Cottage Projects”). The strategy minimized the amount of taxable debt needed to complete the acquisition. Further, the Cottage Projects and associated 1st generation entrance fee proceeds will provide a de-leveraging opportunity for the organization, allowing for the taxable debt used for The Summit purchase to be repaid as the cottages are completed and occupied, removing any refinancing risk traditionally inherent with bank debt, while also managing Lifespire’s cash position through construction.
A favorable interest rate environment and desire to bolster future bank debt capacity resulted in the 2017A and 2017B bank-purchased bonds being refinanced. Given Lifespire’s recent financial performance and achievement of a Fitch BBB credit rating, the existing interest rates exceeding 4.50% were well above the current fixed rate bond market, even after accounting for material interest rate swap termination fees.
Principally, the Series 2021 financing provides LifeSpire with the funds to acquire The Summit, expected to close on September 30, 2021, adding a stable operating community with room for expansion to the LifeSpire family. Though the acquired assets of the community are comprised of 70% independent living units, typically financed with taxable debt, the creative financing structure effectively will only require about 45% of the purchase price to originate from taxable debt, all of which will be repaid with entrance fee proceeds from the Cottage Projects. Notably, the final purchase price of $30.25 million represents a substantial discount to the independent appraised value of over $45 million.
With the refinancing of the Series 2017A and Series 2017B Bonds, LifeSpire does not hold any long-term bank debt, anticipating future deployment of the organization’s bank debt capacity for reinvestment into existing communities as well as other growth opportunities. More restrictive additional debt requirements of the bank debt are also discharged, providing greater flexibility in addressing LifeSpire’s capital needs going forward.
Leveraging the strong credit profile of LifeSpire along with a favorable interest rate environment, Sims was able to achieve pricing for the $77,875,000 of Series 2021 Bonds with a yield of 1.95% to the first call date of the 30-year maturity. Lack of a debt service reserve fund did not negatively impact the pricing, which would have added approximately $250,000 of annual debt service. In addition, the refinancing of the Series 2017A and Series 2017B Bonds will save approximately $400,000 in annual debt service, despite the costs incurred to terminate the existing interest rate swaps, indicative of the credit improvement of the organization since 2017. Sims was also able to secure a five-year call feature at a 103% premium declining to a par call after eight years, further contributing to the organization’s financial flexibility going forward.
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