HJ Sims Executes Complex Current and Advanced Refundings for Maple Knoll Communities in Anticipation of a Pending Affiliation
“HJ Sims has been an excellent partner for Maple Knoll Communities. HJ Sims was able to help Maple Knoll Communities navigate through a complicated transaction. Aaron Rulnick and Kerry Moynihan facilitated the process under constant changing financial scenarios due to the pandemic and structured the financing to generate debt service savings and covenant relief.”
– Jim Stahl, Chief Financial Officer, Maple Knoll Communities
Partnered Right®
Founded in 1848, Maple Knoll Communities, Inc. (“MKC”) is an Ohio not-for-profit corporation that owns and operates two Continuing Care Retirement Communities: Maple Knoll Village and The Knolls of Oxford. MKC also manages several affordable housing projects and entities pursuant to separate management agreements. In the Greater Cincinnati metropolitan area, MKC serves on average approximately 630 seniors in its owned facilities and another 95 seniors in the affordable housing corporations that it manages.
HJ Sims has enjoyed a longstanding relationship with MKC that dates back to the early 1990s. In 1993, HJ Sims financed a major expansion to the Maple Knoll campus and then financed phases I and II of the Knolls of Oxford campus in 1999 and 2002 respectively. In 2007, HJ Sims financed incremental expansions at both campuses. In 2010, HJ Sims served as financial advisor to MKC to extend a portion of its letters of credit with the balance of the outstanding bank debt converted to bank qualified bonds. In 2013, HJ Sims worked with MKC on a refinancing of its outstanding bank debt that resulted in $30.92 million of Series 2013A fixed-rate long-term bonds and $36.0 million of Series 2013B tax-exempt bank bonds and taxable bank debt. In 2017, HJ Sims also worked with MKC to replace two of its commercial bank lenders with a new lender and later helped them secure construction financing for a small expansion project.
Structured Right®
With interest rates at record lows, HJ Sims recognized the opportunity to complete an advanced refunding of the outstanding Series 2013A bonds and generated meaningful interest savings for MKC. Given the prohibition on tax-exempt advanced refunding however, MKC would need a creative solution in order to realize such savings. Upon thorough consideration of MKC’s capital structure options, HJ Sims identified that the organization could better deploy its capital provider relationships by replacing the existing bank debt with fixed-rate debt and the existing fixed-rate debt with Cinderella bank debt. In addition, HJ Sims worked closely with bond counsel to review recent construction expenditures and identify what portion of their outstanding taxable debt could be reimbursed with tax-exempt proceeds.
In March 2019, HJ Sims began discussions with the Executive Leadership and Board of MKC and was formally engaged to pursue potential affiliation partners on behalf of MKC in May 2019. Though the process was extended due to the COVID-19 pandemic and an agreement had not yet been reached, MKC was in advanced discussions to affiliate with BHI Senior Living at the time of the financing. Given the medium-term strategies that had been discussed between the two organizations, HJ Sims ensured that MKC would have the ability to refinance its debt after five years in order to pursue these strategic objectives. Additionally, HJ Sims worked to restructure principal payments and negotiate covenant relief so that MKC had the opportunity to recover from the impact COVID-19 had on its operations.
Executed Right®
Because the amount of bank debt outstanding was comparable in size to the amount of the fixed-rate bonds outstanding, HJ Sims approached MKC’s existing commercial bank lenders about providing the Cinderella refunding of the Series 2013A bonds in exchange for their outstanding debt being refunded.
For a takeout source of the bank debt, HJ Sims considered both a fixed-rate public issuance of tax-exempt debt as well as a limited offering to one of the main holders of the Series 2013A bonds. Ultimately, since the sole purchaser was willing to shorten the call date of the 2013A bonds it held by one year, HJ Sims determined that the resulting escrow savings had a more beneficial impact on the savings analysis than the ability to potentially secure nominally lower interest rates in the public market. This approach proved to be further appropriate when later in the process some of the Cinderella debt needed to be redistributed from the banks to the sole purchaser.
Post-closing, in order to execute the change in the call date on only a portion of the CUSIP that had been pre-refunded, HJ Sims worked closely with a number of working group members to maneuver a complex operations process that allowed for only that portion of the defeased bonds to be repaid a year early. In addition, HJ Sims continued to successfully guide MKC through the affiliation process with BHI Senior Living, culminating in an Affiliation Agreement that was executed in October 2021.
Financed Right®
On May 27, 2021 HJ Sims closed on the $69,088,000 financing, which consisted of $35.215 million of tax-exempt fixed-rate bonds, $5.635 million of Cinderella fixed-rate bonds, $26.600 million of Cinderella bank bonds and $1.638 million of taxable bank debt. In keeping with the original objectives, the financing accomplished the following:
- Generate Debt Service Savings and Covenant Relief: With its new debt structure, MKC will enjoy nearly $1 million of annual savings for each of the next five years and have the covenant flexibility it needs to recover from the impact of COVID-19.
- Establish a More Secure Debt Profile: Prior to the refinancing, MKC had $31M of variable and adjustable rate bank debt, some of which had large bullets coming due in the next few years. As a result of the refinancing, MKC was able to replace $3M of its bank debt with long term debt and secure synthetically fixed interest rates on the remaining portion for the next five years.
- Fund Capital Improvements: Although MKC had no large capital projects planned, the financing presented an opportunity to borrow an additional $2.5M for routine capital expenditures. By borrowing for capital expenditures that would have been funded by operating cash, MKC will be in a better position to build its liquidity in the years ahead.
For more information, please contact:
Aaron Rulnick
301.424.9135