sims closes $221,645,000 all variable rate financing for pacific retirement services

Rendering of Mirabella Portland

The community is located in Portland’s South Waterfront District, recently redeveloped to include a major health center, high-rise condominiums and restaurants, shops, transportation and other features constructed in a “green” environment, along the Willamette River. Mirabella, with views of the river and the surrounding mountains, will be a LEED “Platinum” building. PRS has entered into an affiliation agreement with Oregon Health and Sciences University by which the two organizations will develop ways to improve senior health care and provide learning opportunities for residents, patients and employees of both organizations.

the challenge

Sims was engaged as senior managing underwriter, and the financing process began in mid-2007, as the national economy and particularly the banking industry were beginning to experience challenges to capital and liquidity, thereby limiting capacity for project financing; this became critical in the ensuing months as problems with mortgage lenders, bond insurers and auction rate securities severely challenged the capital markets. The plan of finance for Mirabella included all-variable rate financing in the form of tax-exempt and taxable variable rate demand bonds enhanced by bank letters-of-credit in the amount of $225,000,000. The request for proposals circulated in September 2007 resulted in multiple expressions of interest; however, in succeeding months many banks became unable to participate, including several which had indicated their intent to become participants but failed to commit in the final months before closing.

Because the project was under construction, with more than 90% of the independent living apartments reserved, and could not be delayed, in order to complete the financing in the event the full syndicate could not be assembled, Sims developed an alternative plan of finance that incorporated its Entrance Fee Principal Redemption Bonds coupled with long-term fixed rate bonds that would be issued on a parity basis with the enhanced variable rate bonds.

Ultimately, this plan was not required. Bank of Scotland and KBC Bank as the agent banks for the financing, working closely with the underwriters and PRS, were able to assemble a group of five banks who committed to the financing. Assembly of a letter-of-credit package of this size in the current environment was an exceptional achievement.

the result

As a result, Sims was able to place $212,165,000 of daily rate bonds with an initial coupon of 1.50% and $9,480,000 of weekly taxable bonds with an initial coupon of 2.50%, an exceptionally low cost of funds for a start-up CCRC project.