The Borrower is a privately held company based on the West Coast, providing healthcare and rehabilitation services to more than 1,000 long-term residents and short-term high-acuity patients in its skilled nursing and assisted living communities. The Borrower focuses on acquiring underperforming assets, and improving performance through the implementation of its policies and procedures and cost-control measures, while improving overall patient care. Sims previously partnered with the Borrower on three different financings dating back to 2019.
The Borrower sought to acquire a portfolio of two skilled nursing properties, which included a property it currently operated via a triple-net lease and a second property representing a turnaround opportunity, owned by a third-party. The Borrower was acquiring the leased property by exercising a purchase option at a pre-determined price as a term of its lease agreement. Due to a significant turnaround in performance achieved by the Borrower, the true market value of the property exceeded the pre-negotiated purchase price of the option.
Recognizing the value generated by the Borrower through a below-market purchase option, Sims and its Bank Partner were able to maximize leverage on the combined portfolio inclusive of the turnaround acquisition, proposing a high-leverage, uni-tranche first mortgage loan (the “A/B Loan”). The A/B Loan combined two tranches of debt into a single debt instrument (the “A/B Loan”) with the Bank Partner providing a portion of the A/B Loan (the “Tranche A”) on a priority basis and Sims providing a portion of the A/B Loan (the “Tranche B Funding”) 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.
HJ Sims provided the subordinate Tranche B portion of a $13.9 million first mortgage loan which in combination with equity from the Sponsor, was used to fund the acquisition. Through an affiliate of Herbert J. Sims Investments, LLC (“HJSI”), Sims sold securities through its Private Client Group to fund the loan. The loan was structured with interest only payments over the first 30 months, limiting debt service expense over the near-term. Additionally, financial covenants for the A/B Loan were structured to ramp up over time, allowing the Borrower time to implement its business plan.
The customized financing solution was structured to help the Borrower with both its short and long-term financing needs. With additional leverage, the Borrower is able to preserve capital for future growth and support of its communities.
HJ Sims excels in providing customized debt and equity capital for senior living providers utilizing a variety of direct financing solutions including equity, preferred equity, mezzanine debt, and high leverage first mortgage loans, tailored to meet the unique financing needs of valued partners.
The financing marks Sims’ fourth successful closing with the Borrower.
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