financing a community expansion, replacing a swap, refinancing outstanding debt and closing on a tight schedule

description

Edgewood Retirement Community, located in North Andover, Massachusetts, currently consists of 219 independent living units and 45 nursing beds. Edgewood plans to expand its continuum of care by adding a wellness center and bistro, building 24 additional independent living cottages and creating a new cognitively impaired unit consisting of 40 skilled nursing beds, which will increase the number of skilled nursing beds in the facility from 45 to 60 (“Expansion Project”).

Edgewood Retirement Community - North Andover, MA

challenges

The most efficient plan of finance for Edgewood included letter of credit enhanced variable rate bonds. However, the letter of credit bank which enhanced the Series 2000 bonds was not able to enhance new bonds to finance the Expansion Project. Sims and Edgewood turned to Bank of America as lead bank and TDBank as participant bank to provide a letter of credit to enhance the 2008 Expansion Project bond issue.

Edgewood granted to the bank which enhanced the Series 2000 bonds a negative pledge, which means Edgewood did not provide a mortgage to secure the Series 2000 bonds. In the current credit environment it made sense to provide a mortgage to obtain the letter of credit for the 2008 Expansion Project bond issue. However, the Series 2000 letter of credit bank did not want to share the mortgage with Bank of America and TDBank. Bank of America and TDBank agreed to provide a new letter of credit for the Series 2000 bonds to replace the original letter of credit. In order for Edgewood to grant a mortgage to Bank of America and TDBank, the closing of the 2008 Expansion Project bond issue had to occur on the same day that Bank of America and TDBank provided the new letter of credit for the Series 2000 bonds. Furthermore, Edgewood had to terminate the interest rate swap which hedged the variable rate on the Series 2000 bonds on the day it closed the 2008 Expansion Project bond issue. That swap was provided by the original Series 2000 letter of credit bank and the swap documents required the swap to terminate when the letter of credit terminated.

The 2008 Expansion Project financing had to close by November 21, 2008 to permit the contractor to complete foundation work prior to the ground freezing.

solution

Despite challenges in the credit markets, Sims and Edgewood obtained an attractive letter of credit from Bank of America and TD Bank. Bank of America also agreed to replace the prior swap so that Edgewood could maintain an interest rate hedge on the Series 2000 bonds.

Edgewood obtained deposits for 17 of the 24 new cottages in October and Bank of America and TD Bank provided the letter of credit commitment in November. Sims scheduled the 2008 Expansion Project closing and the mandatory tender of the Series 2000 bonds for November 21, 2008. The mandatory tender of the Series 2000 bonds enabled the trustee to replace the original letter of credit with the new Bank of America and TDBank letter of credit. Sims convinced the owner of the Series 2000 bonds to shorten the notice period for mandatory tender of the Series 2000 bonds in order to permit the closing to occur on November 21, 2008.

financing results

Sims sold the $41.080 million of Series 2008 bonds and closed the Series 2008 bond issue by the required date. Simultaneously, the Series 2000 bonds were remarketed with the replacement letter of credit. In addition, Edgewood terminated the prior swap which hedged the Series 2000 bonds, and Bank of America provided a replacement percentage of LIBOR swap with a 14-year term and a 2.59% fixed rate. Edgewood also plans to enter into a swap with Bank of America in the near future to hedge the Series 2008 bonds.