start-up ccrc – securing a letter of credit and 30-year fixed rates at 6.95% in a difficult market

description

Located in the Town of Union, New York, GSVE will consist of 74 independent living cottages, 80 independent living apartments, and a healthcare center consisting of 32 adult care units (16 enhanced assisted living units and 16 special needs assisted living units) and 32 skilled nursing beds. GSVE’s parent company is FGS, Inc., a New York not-for-profit corporation which also sponsors the Good Shepherd Fairview Home, a continuum of care campus consisting of 40 independent apartments, an 83-bed adult care facility, and an 86-bed skilled nursing facility.

challenge

GSVE’s initial plan of finance included short-term variable rate bonds and long-term non-rated fixed rate bonds. However, as long-term non-rated fixed rates increased, the project could not support an all non-rated long term bond issue. Furthermore, GSVE had to finance the project by August 8, 2008, as dictated by the construction contract to ensure that the extensive site work would begin while the topsoil is still dry.

solution

Sims developed several plans of finance to combat the increase in the non-rated bond yields. Ultimately, the best plan of finance for GSVE involved a hybrid plan which included short-term enhanced variable rate bonds and long-term non-rated fixed and enhanced variable rate bonds. To enhance the variable rate bonds, Sims had to overcome the impact of the mortgage crisis which has greatly reduced bank capital and the availability of letters of credit. The start-up status of the GSVE community also was an obstacle for numerous letter of credit providers. However, Sims and GSVE were able to secure a letter of credit from Manufacturers and Traders Bank (“M&T Bank”) in April 2008 to enhance both the short-term and long-term variable rate bonds with favorable terms. Moreover, Sims worked with M&T Bank to identify local banks to fulfill the requirement that participating banks assume 50% of the letter of credit. To manage the timeline and insure an on time construction start, Sims collaborated with GSVE and the contractor to design a limited notice to proceed with site work prior to the bond closing.

result

With Sims’s remarkable retail and institutional distribution, the $23.160 million of non-rated fixed rate bonds were priced at a long-bond yield of 6.95% with a 32-year final maturity. The 6.95% yield is 5 basis points lower than the 7% yield achieved the same week by a BBB- rated hospital bond. The $18.310 million of short-term variable rate bonds and $23.180 million of long-term variable rate bonds will be hedged with SIFMA-based swaps for terms of three and seven years, respectively.