HJ Sims Provides Acquisition Financing for Healthcare Community 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
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 40 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.
HJ Sims, in partnership with a national bank (the “Bank Partner”), has previously completed three financings for Monarch. In December 2017, Sims and the bank partner provided a $22.6 million high-leverage first mortgage loan to fund the acquisition of a portfolio of two healthcare campuses. In May 2019, Sims provided an advance to an existing first-mortgage loan on a subordinate basis to fund and “Earn-out”, increasing the first mortgage loan to $7.325 million. In June 2019, Sims and the Bank Partner provided a $12.75 million high-leverage first mortgage loan to fund the acquisition of a portfolio of three healthcare campuses.
Monarch reached an agreement to acquire a healthcare community in Minnesota (the “Community”). Once again, HJ Sims and the Bank Partner proposed a high-leverage, unitranche first mortgage loan to fund the acquisition. 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.
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 Community 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 89% of the total cash transaction costs associated with acquisition.
HJ Sims formed a new entity, Monarch Funding IV, LLC (the “Sims Issuer”), to issue taxable bonds to fund the Sims portion of the loan. 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 $7.9 million A/B Loan. The loan closed on August 1, 2019, meeting Monarch’s timing expectations and agreement with the seller. The financing marks Sims’ fourth successful closing with Monarch.
For more information on how Monarch Financing IV was Financed Right® by HJ Sims, please contact: