Forward Starting Swap and Bank Bonds Allow Vicar’s Landing to Lock In Savings
“We are very pleased with how this forward swap and refinancing worked out. With great, long-term partners like H.J. Sims, we are able to work creatively to achieve long-term goals. The savings going forward will help us to better serve our residents and meet our mission.”
– Bruce Jones, CEO, LCPS Management
Vicar’s Landing, located in the seaside community of Ponte Vedra Beach, FL, is a Life Plan Community consisting of 227 independent living units, 38 assisted living units and 60 skilled nursing beds. In operation since 1988, Vicar’s Landing has experienced strong independent living occupancy in excess of 95% for the last several years. HJ Sims has served as Vicar’s Landing’s investment bank since the community’s inception.
The community just completed a major renovation of its main common areas and the exteriors of all independent living buildings, which was funded with a Series 2014 direct bank bond issuance. In September 2015, Sims began to survey possible refinancing solutions for Vicar’s outstanding Series 2007 Bonds. The Series 2007 Bonds were not eligible for an advance refunding as the bonds had repaid Vicar’s Landing’s Series 1993 bonds, which were used to advance refund its original Series 1987 bonds.
Vicar’s Landing’s sought to reduce its overall debt service but was exposed to interest rate risk since a current refunding could not occur for more than a year. Vicar’s Landing and HJ Sims determined that the best option would be to seek a proposal from the community’s existing commercial banking partner, to see if they would commit in advance to refinance the Series 2007 bonds at the earliest date possible, 90 days prior to the optional redemption date.
HJ Sims and Vicar’s Landing worked with the commercial bank to receive a commitment letter in January 2016. The two-part closing process included first the execution of a forward starting swap in May 2016; in advance of this, Sims needed to get the entire transaction approved with the conduit issuer.
The swap went into effect on the closing date, November 17, 2016, which was also when the escrow was funded for the current refunding of the Series 2007 Bonds. The forward starting swap was required to be issued on an unsecured basis until the actual closing since a secured swap would have required bondholder approval.
As a result of the financing, Vicar’s Landing was able to achieve the following objectives:
Lock in interest rate despite limitations imposed by prior Bond Issues: By executing the forward starting swap in May 2016, Vicar’s Landing was able to lock in a 2.76% interest rate for 10 years versus the 5% interest rate on its Series 2007 Bonds. The ability to receive a bank commitment allowed Vicar’s to take future interest rate and capital risk off of the table and saved a net present value of $2 million.
Reduce Overall Debt Service: Vicar’s was able to reduce its annual debt service by approximately $880,000 a year over the next 10 years. Since it was able to execute the forward starting swap, an additional $312,000 of savings was realized versus where swaps rates were in November 2016 after the election. The additional savings also allowed Vicar’s to utilize $1.2 million of bond proceeds for capital improvements.
Maintain Financial Flexibility: The forward starting swap rate also included a 7 year cancellation clause so that Vicar’s Landing could maintain the option refinance the Series 2014 and Series 2016 bonds together when the mandatory tender for the Series 2014 bonds would occur in January 2024. The 2016 refinancing was also issued a refunding indebtedness under its 2007 indenture so that all covenants were maintained.
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