sims closes $54.3 million variable-rate financing in texas

background

Morningside Ministries (“Morningside”) is a multi-campus organization that began serving San Antonio, Texas seniors in 1961. Morningside has grown to include three campuses in the San Antonio area and has developed a complete continuum of senior living options and related services in a non-profit, faith-based setting over the past 45 years. The organization is well recognized as a leading senior living organization in Texas.

expansion

Initial development of Morningside’s third campus, Morningside at Menger Springs, located in Boerne, Texas was completed in 2004. The 34-acre campus included an initial phase consisting of 95 rental independent living apartments and related amenities, as well as a 26-unit, state-of-the-art assisted living facility (including 13 memory support units) known as Menger House. After successfully achieving full and stabilized occupancy, Morningside decided to purchase additional land and expand the continuum of care to include 30 independent living cottages, a 40 bed nursing facility and an additional 16-bed assisted living wing at Menger House.

key challenges

Sims identified that existing financing documents, related covenant requirements and collateral structure did not provide sufficient flexibility to finance the expansion, pursue future strategic plans and fund routine capital improvements for the organization. Morningside also desired to change various financing party relationships including the trustee, letter-of-credit bank, and remarketing agent. The existing letter-of-credit bank was also serving as Morningside’s remarketing agent and counterparty for a secured interest rate swap, and the current trustee would not provide consent for its replacement. The financing for the expansion included additional funds for renovations at Morningside’s two San Antonio campuses, creating the need for an inter-local agreement between issuers. The cottages, which were successfully 100% pre-sold, included a refundable entrance fee program which required a Certificate of Authority to be issued by the Texas Department of Insurance. A low-cost financing structure consisting of all variable-rate tax-exempt bonds backed by a bank letter-of-credit was desired during one of the most challenging capital market periods in recent history.

solution

Sims worked with the Morningside management and legal team to define a new flexible finance and document structure that was tailored to Morningside’s specific needs and future plans. Sims prepared and delivered a detailed letter-of-credit solicitation book to numerous banks, conducted site visits and follow-up calls, coordinated the selection and negotiation process, and successfully secured a $54.3 million letter-of-credit from Allied Irish Bank and KBC Bank to support the issuance of the variable-rate bonds. An interim construction line of credit was utilized to fund construction of the cottages, which was then repaid from bond proceeds, $23.5 million of new money was funded for the campus expansion, existing debt was refinanced and capital outlays were reimbursed to Morningside. Sims was also instrumental in preparing the application for the Certificate of Authority and successfully obtaining approval from the Texas Department of Insurance.

result

Sims closed on the $54,300,000 bond financing in February 2008. The bonds have an extended 33-year maturity. The interest rate at initial placement of the bonds was approximately at 1.85%. Weekly yields have been averaging approximately 21 basis points below SIFMA, resulting in significant savings to Morningside. After closing, Morningside worked with Sims as its advisor to execute a $23 million interest rate swap of its variable rate-debt to fixed rates on an unsecured basis.