HJ Sims Provides Acquisition Financing for a Three Property Healthcare Portfolio in Minnesota
“HJ Sims has been instrumental in funding the growth of our company. Having Sims as a trusted capital partner has enabled us to focus on providing innovative care and 5-star customer service to our residents and their families.”
–Josh Legum, Chief Executive Officer
Partnered Right®
Monarch Healthcare Management (“Monarch”) is a privately held healthcare owner and operator specializing in the acquisition and management of high quality skilled nursing facilities. Headquartered in Mankato, Minnesota, Monarch operates 32 skilled nursing and assisted living facilities located primarily in Minnesota with one facility in Wisconsin. As a care focused operator, Monarch’s mission is to change the way short-term rehabilitation and long-term healthcare is delivered, striving to put residents, tenants, and families first through its commitment to Innovative Care and 5-star Customer Service.
Monarch has grown through a series of strategic acquisitions, with the first completed in July 2015. Monarch has a strong track record of improving financial performance at facilities it has acquired through a combination of driving census, improving quality mix, and reducing expenses through the implementation of more favorable vendor and third party contracts.
Sims previously partnered with Monarch twice before, providing financing in December of 2017 to fund the acquisition of a portfolio of two healthcare campuses and again in May of 2019 to fund an “Earn-out” for a successful turnaround acquisition. As part of the 2017 financing Sims, along with a bank partner, provided a $22.6 million high-leverage first mortgage loan to fund the acquisition. For the 2019 financing, Sims provided an advance to an existing first-mortgage loan on a subordinate basis, increasing the first mortgage loan to $7.325 million.
Structured Right®
Monarch reached an agreement to acquire a portfolio of three healthcare campuses consisting of over 250 assisted living and skilled nursing beds (the “Portfolio”). HJ Sims partnered with a national bank (the “Bank Partner”) to propose a high-leverage, unitranche first mortgage loan to fund the acquisition of the Portfolio. The proposed loan combined two tranches of debt into a single debt instrument (the “A/B Loan”) with the Bank Partner providing “Tranche A” of the loan on a priority basis and Sims providing “Tranche B” of the loan 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. An agent and loan servicer acts on behalf of both lenders for the entire A/B Loan, simplifying the payment and reporting processes required with multiple lenders.
Executed Right®
Monarch found the A/B Loan attractive for the acquisition as it provided higher leverage compared to a conventional bank loan, allowing Monarch to avoid raising unsecured subordinate debt at a higher cost of capital or diluting its ownership in the Portfolio from taking on additional equity partners. In addition, the loan was structured with a two year interest only period and can be re-payed any time after two years, allowing Monarch to limit debt service expense over the near-term as it implements performance improvement measures, while providing flexibility to refinance any time after the interest only period. The A/B Loan provided approximately 85% of the total cash transaction costs associated with acquisition.
Financed Right®
HJ Sims formed a new entity, Monarch Funding III, LLC (the “Sims Issuer”), to issue taxable bonds to fund the Sims portion of the loan. HJ Sims successfully sold subordinate first mortgage taxable bonds through its Private Client Group to high net worth accredited investors to fund its portion of the $12.75 million A/B Loan. The loan closed on May 31, 2019, meeting Monarch’s timing expectations and agreement with the sellers. The financing marks Sims’ third successful closing with Monarch.
For more information on how Monarch Financing III was Financed Right® by HJ Sims, please contact:
Jeff Sands
(203) 418-9002
Curtis King
(512) 519-5003