HJ Sims Successfully Completes $37m Bank Financing for NJ Non-Profit Life Plan Community
“Jim Bodine and Siamac Afshar were instrumental in leading Medford Leas through our first financing transaction in many years. As Medford Leas had historically relied on excess cash reserves to fund capital improvement projects, when the plans came together for each of the various multi-phased projects, we knew we needed the expertise of a firm like HJ Sims to support us through this transaction. The HJ Sims team was able to lead our Finance Committee and Board through the review of all proposals and ultimately the selection process in an efficient manner that kept us on track to meet our internal deadlines. We had a great experience working with Jim and Siamac.”
— Abby Loftus, Chief Financial Officer, The Estate T/A Medford Leas
The Estaugh T/A Medford Leas (“Medford Leas”) is a Continuing Care Retirement (Life Plan) Community (CCRC), owned and operated by The Estaugh, a New Jersey nonprofit corporation. The Estaugh operates a senior residential community on two nearby campuses known as Medford Leas at Medford (Medford, NJ) and Medford Leas at Lumberton (Lumberton, NJ). Tracing its formation to 1914 and the founding of its sponsor, The Estaugh, Medford Leas opened in 1971. Medford Leas was the first CCRC in New Jersey to receive a Certificate of Authority for its initial Medford Leas residential units.
Between its main campus in Medford, New Jersey, which offers a full continuum of care, and its all-residential living campus in Lumberton, New Jersey, Medford Leas provides 394 Residential Living Units (all but five, subject to Life-Care Residency Agreements), 284 on the Medford Campus and 110 on the Lumberton Campus, 119 Comprehensive Personal Care Units and 24 Skilled Nursing Beds.
As part of its mission, The Estaugh chose to create a community in harmony with nature. In 1981, the entire acreage of both the Medford and Lumberton campuses was designated as an arboretum, known as The Barton Arboretum and Nature Preserve of Medford Leas. This is a unique blend of accessible public gardens, collections and preserved natural areas set amidst private residential space. The Arboretum offers visitors a diverse horticultural array of designed gardens, landscaped grounds, meadows, natural woodlands and wetlands, and one of the most extensive plant collections— including natives— in southern New Jersey.
At the time HJ Sims was retained, Medford Leas had not incurred any long-term debt in decades, having funded growth and capital investment with cash flow and funds on hand. However, in this case, Medford Leas elected to pursue external financing for what was a multi-phase series of capital improvement projects at the Medford Campus focused on renewing, expanding and adding amenity space as well as critical infrastructure. This broad spectrum of projects included the addition of an outdoor terrace and dining venue, enhancements to the community building, including a new HVAC system, backup generator, as well as a new café and improvements to the formal and private dining amenities, replacement of the current indoor pool, updates to various common areas, replacement of an entrance from a State Highway, parking improvements and relocation and improvements to its Sub-Acute Rehabilitation Center and Comprehensive Personal Care neighborhood.
With HJ Sims’ assistance, Medford Leas evaluated both bank and bond debt for project financing along with a variety of structuring options. To facilitate this process, HJ Sims engaged the Finance Committee and full Board in several education sessions. These covered topics related to tax-exempt debt financing, such as mechanics for implementing tax-exempt financing, the attributes and key qualitative and quantitative considerations associated with both bank and bond financing and the potential use of interest rate swaps to fix interest rates on the financing.
Ultimately, through this evaluation, bank financing was identified to be the most attractive source of financing. As such, HJ Sims conducted a broad bank solicitation, canvassing twenty (20) banks. This generated seven (7) financing proposals with highly favorable terms: attractive interest rate pricing, long tenor, low up-front fees, measured conditions precedent to financing, including, in several cases, offers to take the mortgage as an abundance of caution, and attractive covenants. HJ Sims negotiated with the leading bank candidates, and Medford Leas ultimately selected Fulton Bank, who offered the most attractive overall financing solution.
Medford Leas elected to finance the full $37 million from a single source (Fulton Bank), combining a variable rate loan, floating during construction and fixed via a forward starting interest rate swap following construction, along with a draw-down feature for loan proceeds. This combination reduced interest expense during construction and allowed for an attractive fixed long-term interest rate following project completion (with a 15-year tenor). Key covenants largely mirrored those in a newly created Master Trust Indenture implemented as a framework financing document for this financing as well as for future Medford Leas financings.
Given that Medford Leas had not been through the financing process previously, several aspects of the financing process were novel. Working collaboratively with Medford Leas, Corporate and Bond Counsels, and ultimately Fulton Bank, HJ Sims assisted Medford Leas through the tax-exempt issuance process, including selection of a national, rather than local conduit issuer, navigated the local financing approval process, monitored completion of conditions precedent to closing, as well as guided preparation of financing documentation including the new MTI.
With HJ Sims’ leadership and the collaboration of the Fulton Bank and the full financing team, Medford Leas successfully secured $37 million in bank financing at a synthetic fixed rate of 3.52% and 15-year credit commitment. Of additional note was completion of financing in late April/early May 2023, amidst a volatile interest rate environment. HJ Sims also served as Swap Advisor, parallel tracking completion of financing conditions precedent, transaction documentation and bank credit approval. With the completion of this financing, Medford Leas is well-positioned to complete its phased capital projects with an attractive capital structure together with a modern MTI and parallel bank credit documents. This will serve as an important foundation for future operations as well as additional capital investment and potential additional financing for future projects.
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