Sims Works with Banks to Maximize Savings for the Lutheran Community at Telford
“Jim Bodine, Patrick Mallen and the rest of the HJ Sims team did a wonderful job guiding us though the financing process. Their extensive network of lenders produced a competitive bidding process that will ultimately result in meaningful interest expense savings and their technical knowledge related to our financing options made the difficult decisions easy. Sims’ professionalism and expertise produced benefits that Lutheran Community at Telford will enjoy for years to come.”
– Vince Gulotti, VP Finance, Lutheran Community at Telford
HJ Sims successfully completes combined $32.1 million debt refinancing and modification generating interest expense savings, extended bank credit commitments and supplementary new project financing.
Jim Bodine, Aaron Rulnick and Patrick Mallen represented HJ Sims on this transaction.
Founded in 1962, Lutheran Community at Telford (“LCT”) operates a life plan community on a 56 acre campus in Telford Borough, PA and West Rockhill Township, PA (the “Community”). The Community is comprised of 245 Independent Living Unit Apartments & Cottages, 125 Assisted Living Beds (97 Units) and 75 Skilled Nursing Beds.
In January 2017, Lutheran Community at Telford entered into an affiliation agreement with the Community at Rockhill and its affiliate, RM Home Services (together “Rockhill”), a non-profit life plan community located in nearby Sellersville, PA. Rockhill is comprised of 213 independent living units, 53/74 personal care units/beds and 90 skilled nursing beds on a 44 acre campus. LCT and Rockhill will each retain its individual identity, while the newly-created parent company, Grace Inspired Ministries, will strengthen and support the mission of both communities. Together, they serve close to 800 residents and employ over 600 team members serving residents and the local community.
HJ Sims was engaged by LCT in September 2016 to explore options for refinancing all or a portion of its existing debt (with approximately $35.4 million total outstanding) along with funding for additional capital needs associated with a future independent living unit expansion project.
Of its $35.4 million of total debt, LCT had approximately $19.3 million of outstanding fixed rate and variable rate bonds (the “Series 2007 Bonds”) which had funded major improvements to LCT’s existing facilities together with refinancing outstanding debt. LCT’s Series 2007A fixed rate bonds were approaching an optional redemption date in early 2017, and the letter of credit (and associated swap) underlying LCT’s Series 2007B variable rate bonds were scheduled to renew/terminate in fall 2017. With these upcoming milestones and interest rates approaching multi-decade lows, HJ Sims analyzed refunding this debt together with the potential benefits of refinancing or modifying LCT’s other outstanding debt, comprised of bank loans with two regional community banks (the “Series 2010 Bank Debt” and “Series 2015 Bank Debt”) to finance facilities’ expansion, reconfiguration and renovation.
LCT enjoyed favorable relationships with its bank partners, particularly Penn Community and Univest but sought to explore a range of financing opportunities. These included bank financing from LCT’s existing banks, as well as other banks active in the sector and region, together with the potential issuance of fixed rate bonds, including the prospects for a public credit rating.
There were multiple issues to explore in structuring the financing and refinancing including (1) identifying the portions of the existing debt to be refinanced; (2) the most efficient means to implement the refinancing/financing (i.e. bank or bond financing) and whether to accomplish via refinancing or via modification of the existing debt; (3) optimum structuring of the transaction including (a) maximizing the length of the credit commitment(s) for the new/modified bank debt while weighing the cost and other economic and qualitative considerations, (b) achieving LCT’s desired interest rate mix, focused primarily on fixed-rate financing, including conversion of its existing LOC-backed variable rate debt to a fixed-rate, and (c) maintaining sufficient future operating, financing and strategic flexibility, not only for future initiatives at LCT, including further campus growth, but also for further potential collaboration between LCT and Rockhill.
Following extensive analysis by Sims and assessment by LCT Management and Board, LCT opted to pursue bank financing for the refinancing and financing. HJ Sims led a bank financing solicitation which included LCT’s existing banks together with banks active in senior living in the Pennsylvania/mid-Atlantic region (14 total banks solicited). There was strong bank interest with multiple proposals received from LCT’s existing banks as well as a number of other banks. Based on the responses and comparison to LCT’s existing debt, LCT decided to: 1) modify the terms of the Series 2010 Bank Debt to reduce the interest rate (remaining fixed) and extend the tenor (put date) while maintaining the relationship with the existing lender; and 2) refinance the Series 2007 Bonds and fund $2 million for new capital expenditures with a new commercial bank partner (SunTrust Bank). The refinancing replaced the LOC-backed structure of the variable rate Series 2007B Bonds, together with the fixed rate Series 2007A Bonds, with direct bank debt offering a significantly reduced cost of financing (and debt service savings) and longer tenor (13 years). For its fixed rate options, LCT evaluated both a bank-held fixed rate as well as fixed rate via interest rate swap, weighing the relative interest rates as well as varied optional redemption/swap termination provisions (and cost). LCT ultimately elected to fix the rate via a floating-to-fixed interest rate swap with a term matching the 13 year loan tenor. Finally, LCT opted to retain its Series 2015 Bank Debt without modification or refinancing.
The financing was completed in two steps led by the modification of the Series 2010 Bank Debt which was completed on an expedited basis in April 2017 – the interest rate was reduced from 3.15% to 2.80% and the tenor extended from 2024 to 2027. The refinancing of the Series 2007 Bonds and new capital funding, to be drawn as funds are required, was completed in June 2017 with a synthetic fixed rate (via swap) of 2.74% and 13 year tenor (2027 put date).
With Sims leadership and collaborative work of LCT Management, Bank partners and the working group, LCT leveraged its successful operating and financial performance and organizational stewardship to successfully complete the financing and achieve its goals. These included: 1) realizing a significant reduction in interest rates and debt service, enhancing its future financial position; 2) extending the duration of the credit commitment on its bank financing for 13 additional years (and matching it with the term of its interest rate swap); 3) raising additional capital, on a cost-effective basis, to provided initial funding for its upcoming expansion project; and 4) retaining desired flexibility for its future operation and growth alone and in combination with Rockhill.
For more information on how Lutheran Community at Telford was Financed Right® by HJ Sims, please contact: