HJ Sims Underwrites Combination of Current and Forward Delivery Bonds, Locking-In Debt Service Savings and Interest Rates for Future Capital Improvements
The Loomis House, Inc. and Loomis Communities (“Loomis”) is multi-campus senior living organization that traces its origin to 1902. Today, Loomis is comprised of Loomis Village, in South Hadley, MA and Applewood Retirement Community in Amherst, MA, together offering 237 Independent Living Units and 24 Assisted Living Units, and comprising the Loomis Communities Obligated Group. Loomis Lakeside at Reed’s Landing is a separate affiliate and operates a 196 unit/bed retirement community and is not a member of the Obligated Group. Loomis engaged HJ Sims in 2020 to explore the benefits of refinancing its outstanding Series 2013A Bonds along with financing of planned capital improvements – continuing a more than 20-year relationship.
With $11.78 million of Series 2013A Bonds outstanding at interest rates exceeding current market rates and an optional redemption date of January 1, 2023, HJ Sims identified the opportunity for Loomis to refinance this outstanding debt to reduce its interest rates and debt service. While then current interest rates offered a debt service savings opportunity, the outstanding Series 2013A Bonds were not permitted to be refinanced until the January 1, 2023 call date. Further, a traditional “advance refunding”, involving issuance of tax- exempt bonds to refinance prior to the call date, was prohibited by 2017 Federal tax reform legislation.
To address these conditions, HJ Sims proposed the issuance of Forward Delivery Bonds (Series 2022 Bonds) to accomplish the refinancing – forward delivery entails the sale of new refinancing bonds (and setting of interest rates on the bonds), but with delayed delivery/settlement…to occur no more than 90 days before the call date, in this case, on/about October 13, 2022. At that time, the proceeds of the new refunding bonds will be used to redeem the outstanding Series 2013A Bonds. Loomis benefits by setting the new interest rates today, eliminating the risk of rising interest rates before the call date, and locking-in debt service savings to be realized upon settlement of the refunding bonds. In return for committing to fixed rates prevailing under then current market conditions, for bonds to be delivered in the future, investors receive a premium over current interest rates as an incentive to purchase the bonds.
Coincident to planning the refinancing, Loomis was also considering a series of capital improvements at its existing communities and potential incurrence of additional debt to finance these needs – capital improvements, focused on enhancing the resident experience, including renovation and improvement of facilities, independent living areas and housing units. A portion of these projects were anticipated to be undertaken during the first 6-9 months of 2022 with another portion to be undertaken later in 2022 and in 2023. Accordingly, by combining the refinancing with new capital financing, Loomis was able to apply a portion of the potential debt service savings from refinancing to offset debt service on the capital project financing, funded via a separate series of bonds (Series 2021 Bonds) Further, reflecting the timing for incurrence of the capital projects and requirements to comply with additional debt incurrence covenants, Loomis opted to include the second phase of capital projects (late 2022 and 2023) with the forward refinancing to comprise the combined Series 2022 (Forward Delivery) Bonds. Unlike the Series 2022 Bonds, the Series 2021 Bonds could be issued currently, with Loomis having immediate access to the proceeds.
With this two-pronged plan of finance, Sims coordinated the efforts of the financing working group to advance the financing preparation process – this included: 1) creation of new financing legal documents that would become effective upon refinancing of the Series 2013A Bonds in October 2022, 2) evaluation of useful lives of existing assets along with the lives related to the planned projects relative amortization of the Series 2021 and Series 2022 Bonds to assure compliance with federal tax law requirements and 3) confirming Loomis’ existing credit rating with Standard & Poor’s as “BBB” (Stable outlook).
On December 1, 2021, Loomis closed on the Series 2021 Bonds (Current Delivery), in the amount of approximately $6.0 million and “escrow-closed” on the Series 2022 Bonds (Forward Delivery) in the amount of approximately $13.76 million with the Series 2022 Bonds set for final closing in October 2022. Loomis achieved attractive interest rates on both series of bonds, taking advantage of attractive bond market conditions as year-end 2021 approached. As a result, the refinancing is expected to generate approximately $1.37 million in Net Present Value Savings, equating to approximately $335,000 in annual cash flow savings through 2031, and, as noted above, partially offsetting the increased debt service on the Series 2021 Bonds.
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