Refinancing Led by HJ Sims Locks in Long-Term Permanent Financing and Provides Flexibility for Future Growth
“Once again, the Sims team delivered for Morningside Ministries. Seeking to improve our bond covenants and to take advantage of lower interest rates before our optional redemption period, Jimmy Rester, Aaron Rulnick, and Ryan Snow worked diligently to find the best solution. Despite significant market challenges, Sims was able to successfully complete the financing and allow Morningside to focus on growth and strategic opportunities.”
– Pat Crump, President and CEO, Morningside Ministries
Morningside Ministries (“Morningside”) is a Texas nonprofit organization founded in 1959 serving San Antonio seniors in two communities Morningside at Menger Springs, a 34 acre community in Boerne, Texas with 161 independent living units, 40 independent living cottages, 90 assisted living units, and 40 skilled nursing beds along with Morningside at The Meadows, a 23-acre community in San Antonio, Texas with 105 independent living units, 39 independent living cottages, 64 assisted living units, and 100 operational skilled nursing beds. HJ Sims has been a long-term partner to Morningside and approached the organization’s leadership with a refinancing opportunity in the summer of 2020.
Morningside had existing debt that was not callable until October of 2022. Due to the low interest rate environment in 2020 and 2021, Morningside’s goals were to seize the opportunity to lower their overall debt service, update their outstanding covenants with maximum flexibility, and reimburse the organization for previously incurred and ongoing project costs. Below are few of the covenant and provision changes that were achieved:
Prior Bond Documents
New Bond Documents
Financial Covenants: Debt Service Coverage Ratio
Event of Default triggered if less than 1.0x for any Fiscal Year
Event of Default if below 1.0x and below 150 DCOH for any single year
Event of Default if any two consecutive years below 1.0x regardless of DCOH
180 Days Cash on Hand
120 Days Cash on Hand
Financial Covenants: Reserve Ratio
Contained Reserve Ratio
Additional Debt Test: Historic Pro forma Test
Required 1.35x coverage on a pro forma basis
Revised so additional debt may be incurred if on a pro forma basis there is 1.2x coverage
Additional Debt Test: Pro forma Test
Presently requires 1.35x coverage and feasibility report showing forecasted coverage after stabilization
Revise to be 1.25x coverage and feasibility report showing forecasted coverage after stabilization
To meet the strategic financing objectives of Morningside, HJ Sims explored multiple financing alternatives including a Cinderella bank loan and a Bridge to Forward bank loan before eventually recommending a fixed-rate, tax-exempt forward bond issue (the “Series 2022 Bonds”). During the financing, HJ Sims helped Morningside mitigate the cash flow impact of their transition from 90% refundable entrance fee contracts to 50% and 0% refundable entrance fee contracts by structuring a Coverage Support Fund. The funds will be used to offset potential future cash flow shortfalls as they reduce their entrance fee liability. HJ Sims was able to capitalize on a low interest rate environment and a bond market that was showing near historic inflows of cash to bond mutual funds for the Morningside financing. HJ Sims also assisted Morningside in retaining their Fitch BB+ rating.
On February 25th, 2022, on the same morning Russia invaded Ukraine, HJ Sims successfully priced the $55,625,000 Series 2022 Bonds with a closing date of October 4th, 2022. HJ Sims split the 35-year tax-exempt term bond into two 4.25% and 5.00% coupons with 4.48% and 4.63% yields, respectively. The bonds provided a level debt service structure that limited interest rate risk exposure and provided an optional call structure in less than five years.
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