Presbyterian Senior Living (July 2021)

HJ Sims Successfully Positions Presbyterian Senior Living for Future Projects with an Efficient Fixed-Rate Refinancing

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Partnered Right®

Presbyterian Homes Inc. (d.b.a. Presbyterian Senior Living) (“PHI” or “PSL”), a Pennsylvania not-for-profit corporation, is a member of the Obligated Group along with of the following entities: Presbyterian Homes in the Presbytery of Huntingdon, Quincy Retirement Community, The Long Community, Inc., PHI Investment Management Services, Inc., Cathedral Village, and The Long Home testamentary charitable trust. As of the date of the financing, the Obligated Group collectively owned, operated, and managed twelve continuing care retirement communities, three stand-alone independent living facilities and two stand-alone personal care homes in Pennsylvania, Ohio, and Delaware. Though PSL had historically utilized bank loans as its primary source of financing for members of the Obligated Group, PSL engaged HJ Sims to evaluate refinancing of a portion of the Obligated Group’s obligations in the most efficient manner as well as to underwrite bonds for up to $38MM of new capital projects.

Structured Right®

The Obligated Group had twenty-five existing credit facilities, diversely allocated among five banks, two public bond issuances, and variable and fixed rate facilities. A number of the fixed rate bank facilities had rate resets and put dates prior to their ultimate maturities. HJ Sims first reviewed the covenants, payment terms, structures and maturities of the existing credit facilities with an eye towards minimizing the payment of prepayment premiums, retaining bank relationships that were true partnerships, and providing a stable base capital structure upon which future growth could be layered.

HJ Sims worked closely with management to evaluate a number of options of potential financing structures. Existing taxable and variable rate debt was not refinanced to preserve as a synthetic hedge within the Obligated Group’s overall capital stack. With respect to outstanding tax-exempt fixed rate bank debt, HJ Sims analyzed prepayment premiums, the current rate versus projected true interest cost of the refunding debt, the rate reset risk, lender relations, years to maturity and put rate risk. The 20 credit facilities that were subject to potential refinancing were then assessed according to the foregoing and categorized as green (refinance), yellow (consider refinancing) or red (do not refinance). This process enabled PSL’s Board and management to make an objective determination as to the refinancing.

HJ Sims also assisted PSL in evaluating how much additional funds to borrow for upcoming capital projects. This analysis focused on larger scale capital projects expected to be completed over the next three years, the negative arbitrage on proceeds held in a project fund prior to their expenditure, projected entrance fee receipts for new independent living units, and the impact of the additional borrowing on the Obligated Group’s financial ratios. The Board also wanted the ability to redeem a portion of the bonds early if one or more of the projects was discontinued prior to its projected draws from the project fund. HJ Sims negotiated a redemption provision into the bond indenture to provide such flexibility.

The final structure consisted of a $59,530,000 tax-exempt fixed rate public bond issuance, which refinanced six series of outstanding bank debt and provided approximately $38 million in new money for projects and an $8,620,000 taxable term loan with an existing bank partner that refinanced outstanding fixed rate bonds that were bearing interest at above-market rates.

Executed Right®

As a result of the decision by Fitch Ratings to restructure its credit rating criteria for life plan communities (“LPC”), the Obligated Group had been placed Under Criteria Observation (“UCO”) indicating that the Obligated Group was among the LPCs in its portfolio having the highest likelihood of being upgraded or downgraded due to the changes in the criteria but prior to which Fitch required the receipt and evaluation of additional information.  HJ Sims worked alongside management to ascertain which aspects of the Obligated Group’s financial and operating picture placed it UCO and to address those matters during the rating process for the financing.  Furthermore, during the course of the preparations for the financing, PSL had decided to divest itself of two of its communities – one within the Obligated Group and one outside of the Obligated Group but for which PSL’s Obligated Group was providing financial support.  HJ Sims assisted PSL in discussions with Fitch Ratings as they evaluated the potential financing and the impact of the divestitures on the Obligated Group, providing data and information that ultimately resulted in PSL maintaining its BBB+ rating.

HJ Sims also assisted PSL in soliciting its remaining bank lenders for interest in the taxable bank loan refunding of the tax-exempt fixed rate bonds, negotiating with the prevailing lender, coordinating the bank and fixed rate bond financings to a single closing, and shifting a portion of the refinancing allocable to the community to be sold to the taxable bank loan to avoid potential adverse tax consequences. 

Financed Right®

Because the existing indebtedness included rate resets, HJ Sims and management targeted a final structure that, when combined with remaining outstanding indebtedness, reduced aggregate maximum annual debt service while remaining savings-neutral on the refunding of the bank indebtedness and maximizing savings for the refunding of the fixed rate bonds.  Savings on the taxable bank loan that refunded fixed rate bonds were 12.98% of the refunded bonds while savings on the bank debt subject to rate resets was breakeven.  The Obligated Group was able to simplify its capital structure, reducing the number of bank partners, reducing rate reset and refinancing risk, and providing an efficient source of funds for future capital projects.  The final pricing resulted in maximum annual debt service that was $637,238 lower than existing maximum annual debt service, notwithstanding the additional $38MM borrowed for capital projects. 

For more information, please contact:

Melissa Messina

203.418.9015

Aaron Rulnick

301.424.9135

Testimonials may not be representative of the experience of other clients. Past performance is no guarantee of future results