Sims Utilizes HUD Plus to Provide Greater Leverage
Sims was approached by an affiliate of Meridian Senior Living (“Meridian”), the fifth largest senior housing provider in the U.S., to provide subordinate debt in connection with a HUD refinancing of several assisted living communities in North and South Carolina. Using its “HUD Plus” program, Sims successfully provided two mezzanine loans totaling $4.0 million to Meridian to complete the refinancing.
There were several challenges associated with this financing:
- While only two communities were being refinanced, those communities were held in common with two other communities. The financing had to be crafted to accommodate this unusual structure.
- The debt needed to be structured in a way that was flexible and met the requirements of two new HUD financings.
- The financing needed to be closed on a very expedited time frame to accommodate the payoff of costly existing debt and avoid Meridian losing a very attractive rate lock.
Sims underwrote the financing in less than two weeks and developed a plan to make two separate subordinate loans but “pooled” them together to minimize the interest rate and costs. This structure met HUD’s requirements and allowed the transaction to be closed on an expedited basis.
A new entity, Meridian Portfolio Funding I, LLC (the “Sims Issuer”), was formed to issue one series of bonds. The bonds were successfully sold to Sims’ high net worth accredited investors. Proceeds from the bonds were used by the Sims Issuer to fund the two subordinate loans to Meridian. Meridian used the proceeds (along with the HUD refinancing proceeds) to pay off existing debt and fund capital expenditures.
The ability of Sims to quickly underwrite and then implement a subordinate debt structure met the needs of Meridian as well as HUD. This allowed the owners to avoid having to make an additional equity contribution to the transaction. The flexibility and creativity of Sims’ bankers, along with industry knowledge of its retail investors resulted in both short and long-term cost savings for Meridian. A creative financing solution for increasing the proceeds of a refinancing is an example of Sims using its extensive investor base to provide creative financing to senior housing providers. Sims excels in filling the niches that allow an owner or developer to complete a transaction by providing custom financing such as mezzanine debt or preferred equity.