Sims' Imaginative Solutions Finance an Expansion and Partial Refunding for New York Senior Living Community

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Herbert J. Sims & Co., Inc. ("Sims") recently closed a $12,760,000 tax-exempt bank qualified bond issue with Cloverwood Senior Living, Inc. ("Cloverwood"), a not for profit senior living community located in Pittsford, NY, a suburb of Rochester. Cloverwood is an entrance fee based community, consisting of 86 independent living apartments, 64 patio homes and 20 enriched housing (assisted living) apartments. The financing will help to fund the addition of 37 assisted living apartments, 16 of which will be licensed as special needs (memory support) assisted living.

Cloverwood - Pittsford, NY

The original construction of Cloverwood was financed in 2003 with non rated, tax-exempt bonds issued through the County of Monroe Industrial Development Agency (“COMIDA”) and a construction loan from BNP Paribas. As planned, the construction loan was paid off with entrance fee receipts, leaving $17,595,000 of Cloverwood’s Series 2003 bonds, consisting of both fixed and adjustable rate bonds, outstanding.

The expansion of Cloverwood’s assisted living program has been an organizational goal for some time. In particular, the addition of special needs assisted living adds depth to the community’s continuum of care and complements the service offerings of Cloverwood’s affiliated organizations in the Rochester marketplace.

challenges

When Sims and Cloverwood began evaluating financing alternatives, the non rated bond market was essentially at a stand-still, with very high yield requirements by investors and very low demand for new bonds even at high yields. As a result, Sims recommended a letter of credit enhanced variable rate bond structure and sought to secure a credit commitment from a commercial bank. After a thorough RFP process, Cloverwood received a credit commitment on favorable terms from M&T Bank. Ultimately, the financing closed with the issuance of bank qualified tax-exempt bonds, which M&T bought directly.

Several factors complicated the financing. First, COMIDA, the issuer of the Series 2003 bonds, no longer had authority from the State of New York to issue tax-exempt bonds due to the expiration of authorizing legislation at the state level which has impacted all Industrial Development Agencies in New York. In addition, as a condition of its proposal to finance the expansion, M&T Bank required at least a 51% interest in Cloverwood’s credit, meaning that a portion of the Series 2003 bonds also had to be refunded.

solutions

The solution to the issuer dilemma led Sims and Cloverwood to the Village of East Rochester Housing Authority (“VERHA”). Local housing authorities in New York State such as VERHA were not affected by the expiration of IDA issuing authority for senior living projects, making VERHA a viable issuer for the bonds. In order to issue bonds on Cloverwood’s behalf, VERHA entered into an inter-municipal Cooperation Agreement with the Town of Pittsford where Cloverwood is located. To create the most cost-efficient development plan for the project, Sims requested that M&T provide a construction loan to fund development costs, with proceeds from the “new money” component of the VERHA bond issue to be applied to repay the construction loan after the project is completed.

In response to the bank’s requirement to be at least a 51% creditor, Sims structured a plan of finance to include the refinancing of a portion of the Series 2003 fixed rate bonds and all of the Series 2003 adjustable rate bonds, which was attractive to Cloverwood.

While the financing progressed, weekly rate resets in the variable rate bond market began varying substantially due to a bevy of rating changes for key commercial banks in the senior living marketplace. To protect Cloverwood from future rate variability in the event of a downgrade of M&T Bank’s rating, Sims requested that M&T revise their credit commitment from a letter of credit to a bank qualified bond structure, in which the bank bears the risk of future rating actions, not Cloverwood. In addition, the bank offered a fixed rate option to Cloverwood that fixed the rate on the bonds through the term of the bank’s commitment.

In the end, in a challenging credit environment, Cloverwood was able to fund its expansion and partial refinancing with a very attractive cost of capital in a fixed rate mode preferred by Cloverwood’s management and Board leadership.

Sims would like to thank Cloverwood for the opportunity to serve as its Investment Banker for this financing, and we look forward to the continued success of the community!