In Scottsdale, Arizona, Sims’ Refinancing Provides Debt Service Savings and Liquidity Relief
OUR GOOD FORTUNE
“Sometimes in life, you just get lucky. We knew our debt was due/maturing in 2018 and we knew we needed help, but where to turn, who to trust. In 1994, SIMS was there for Westminster Village, underwriting the debt then. So, we attended a SIMS “sponsored” event; met with H J Sims and Jimmy Rester, scheduled a campus visit and what we were impressed with was how enthusiastic Mr. Sims and Jimmy were about our campus, our culture. We felt SIMS was the first “broker” who understood who we were, what we were about.
‘So, we closed on our new tax exempt bonds in mid-December, 2017; Jimmy and SIMS leading the way. During a tempestuous rush for many to close on tax exempt borrowings by many, many campuses like Westminster Village, we were treated like we were the only SIMS client. SIMS was with us every step of the way, controlling, managing, always looking out for what was in our best interest. In a time where we should all be counting our blessings, our greatest blessing was starting the conversation with Mr. Sims, with Jimmy.
‘Sometimes in life, you just get lucky.“
— Bud Hart, CEO/CFO, Westminster Village
Westminster Village, Inc. (the “Community”) is Scottsdale’s premier, not-for-profit life care retirement community that provides resort style amenities, housing, health care and other related services to residents through the operation of a retirement community containing 250 independent living apartments, 23 assisted living units in The June & Frank Sackton Assisted Living Center and 49 beds in the Weyrich Health Care Center located on 16 acres in Scottsdale, Arizona. The Community has historically operated near full occupancy.
After evaluating several financing options with management of Westminster Village, Sims recommended a bank loan financing to obtain the lowest cost of capital. Additionally, after evaluating weighted average life considerations on the outstanding debt, Sims determined that Westminster Village could extend the amortization on the outstanding loan by 14 years and maintain the tax-exempt status on the debt. With these observations in mind, Sims crafted an RFP that was distributed to over 30 banks, resulting in 7 term sheet proposals matching the terms Westminster Village was seeking at considerably lower rates than its current interest rate.
After a detailed evaluation process, Sims weighed the benefits of the seven proposals, five of which proposed swap solutions. Though the swap rates were attractive, the news of the pending elimination of LIBOR brought uncertainty to the future of the swap contracts. Thus, Sims negotiated with Western Alliance Bank (the “Bank”) a financing structure at a “natural” fixed interest rate below the interest rates quoted from other banks that were utilizing a swap. The loan can be called after 7 years without penalty. Ultimately, Sims was able to lock in a 3.42% fixed rate through a 10 year commitment for the Borrower.
With news of pending tax law changes making headlines daily during the negotiation process, Sims was able to request language in the documentation that effectively put a cap on the amount that the Bank could increase the rate on the loan in the event of a change in tax law affecting the bank’s profitability. The provisions limit Westminster Village’s exposure to any changes in tax law, capping the amount that their interest rate can increase.
Finally, the Bank offered Westminster Village a $5,000,000 non-revolving line of credit that can be used for capital expenditures with a two-year draw period, with draws to be termed out coterminous with the refunding term loan.
As a result of the transaction, Westminster Village lowered the rate on its outstanding interest rate from 6.29% to 3.42%. With the refinancing of the existing debt, the Community lowered its debt service payment by over $1 million annually over the next 10 years. The transaction also provides for flexibility in future capital planning by allowing for the debt to be called without penalty after 7 years. Additionally, the new non-revolving line of credit will allow Westminster Village to save operating cash flow that it would otherwise have used for capital expenditures over the next two years, which is expected to add nearly $5 million to the Community’s liquid reserves (and allowing it to nearly double its days cash on hand in a relatively short amount of time). Ultimately, after a diligent process and intentional vetting of each proposed option, Westminster Village obtained a financing option that provided for more financial flexibility and borrowing capacity at a significantly lower cost of capital.
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