HJ Sims Partners with Links Healthcare to Finance Acquisition of West Coast Community
Founded in 2017, Links Healthcare Group (“Links”) is a privately held company based in San Diego, California. Links provides healthcare and rehabilitation services to more than 1,000 long-term residents and short-term high-acuity patients in its skilled nursing and assisted living communities. Links focuses on acquiring underperforming assets, and improving performance through the implementation of its policies and procedures and cost-control measures, while improving overall patient care. HJ Sims previously partnered with Links on financings in 2019 and 2020
Links took over management of a skilled nursing and assisted living community located on a single campus (the “Community”) in California, in October 2019. Upon assuming operations, Links, along with the landlord, completed significant capital improvements to make the Community more competitive. Additionally, despite facing the impacts of COVID, Links enacted operational changes to improve both the financial performance and overall level of care at the Community, ultimately receiving a 5-star rating from CMS for quality measures. Upon completion of its capital plan and operating improvements, Links reached out to HJ Sims and its national bank partner (the “Bank Partner”) for debt financing to acquire the Community.
HJ Sims and the Bank Partner proposed a high-leverage, uni-tranche first mortgage (the “A/B Loan”) to fund the acquisition. The proposed loan combined two tranches of debt into a single debt instrument (the “A/B Loan”) with the Bank Partner providing a portion of the A/B Loan (the “Tranche A”) on a priority basis and HJ Sims providing a portion of the A/B Loan (the “Tranche B Funding”) on a subordinate basis. From the perspective of the borrower, the loan functions as a single debt obligation under a single loan agreement and security package.
Additionally, with a tough labor environment and census on the rise following COVID-level lows and extensive capital renovations, additional opportunity remained for Links to further improve the financial performance at the Community through the continued implementation of its business plan. The A/B loan was structured with a provision for a future loan advances or an “Earn Out” upon the achievement of certain performance thresholds, providing the option to monetize any future increase in value before obtaining permanent financing.
HJ Sims provided $5.4 million to fund the subordinate Tranche B of the first mortgage loan (“Tranche B”), which in combination with the Tranche A proceeds from the First Mortgage Loan, and equity from the Sponsor, were used to fund the acquisition. Through an affiliate of Herbert J. Sims Investments, LLC (“HJSI”), HJ Sims sold securities through its Private Client Group to fund the loan. The loan was structured with interest only payments over the first 24 months, limiting debt service expense to Links over the near-term. Financial covenants for the A/B Loan were structured to ramp up over time providing flexibility as the Borrow continues to navigate the impacts of COVID, inflation, and labor shortages.
The customized financing solution was structured to help Links with both its short and long-term financing needs. With additional leverage, Links is able to preserve capital for future growth and support of its communities. Additionally, the Earn-Out provision of the loan provides the opportunity for Links to secure additional loan proceeds to fund future growth with successful results at the Community.
HJ Sims excels in providing customized debt and equity capital for senior living providers utilizing a variety of direct financing solutions including equity, preferred equity, mezzanine debt, and high leverage first mortgage loans, tailored to meet the unique financing needs of valued partners. The financing marks HJ Sims’ third successful closing with Links.
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