Securing Additional Bank Financing in a Capacity Constrained Market

description

Otterbein Homes (“Otterbein”) is a nonprofit corporation established in 1912, which operates nine facilities (with a tenth site under construction) in the State of Ohio, containing a total of 810 independent living units, 213 assisted living units, and 599 skilled nursing beds. Otterbein has been at the forefront of transforming the way that skilled nursing care is provided in a residential setting. Otterbein has developed “Small House Neighborhoods” which consist of a cluster of five small group homes serving as a residence for ten elders each. These Small House Neighborhoods are based upon the Green House™ concept, but add several new concepts. Rather than locate these Small House Neighborhoods within Otterbein’s existing retirement communities, they are primarily located within existing residential neighborhoods. The Small House Neighborhoods emphasize wellness and focus on providing nurturing personal care and choice. A portion of the proceeds from Otterbein’s Series 2007 bond issue were used to finance its first two Small House Neighborhood communities in Perrysburg and Monclova, Ohio. Otterbein has an “A-” underlying rating from Standard & Poor’s.

challenge

Otterbein has three outstanding series of letter of credit enhanced variable rate bond issues with a syndicate of four banks. While U.S. Bank, as the lead bank, provided a bridge loan to begin construction on three new Small House Neighborhoods, Otterbein needed to issue an additional $20 million in debt to refinance the bridge loan and complete construction. Due to the tight lending environment and the existing commitments that the syndicate banks had with Otterbein related to the previous financings, there was uncertainty that members of the existing bank syndicate could secure approval for the full $20 million in additional exposure. As such, Sims and Otterbein worked with U.S. Bank’s syndications team to reach out to new banks to seek the balance of the additional funding required and join the existing bank group. The new banks’ appetites were severely limited due to a few key factors, including: fee levels; availability of additional ancillary business; and overall capacity.

solution

Ultimately, only two of the four existing banks, U.S. Bank and Fifth Third Bank, were able to increase their participation level for the full $20 million required. In addition to providing the letter of credit on the Series 2009 variable rate bond issue, U.S. Bank replaced Fifth Third as the lead bank on Otterbein’s outstanding Series 1998A and 1998B Bonds due to the decline in Fifth Third’s credit rating which had caused a significant increase in the interest rate on these bonds. The Series 2009 bond issue and the replacement letter of credit on the Series 1998A & B Bonds simultaneously closed on July 16, 2009. Sims placed the Series 2009 Bonds at an initial rate of 0.20%. Additionally, as a result of the U.S Bank replacement letter of credit on the Series 1998A and B Bonds, the average interest rate on these bonds decreased by over 2.25% from the previous weekly remarketing rates.

“Otterbein's relationship with Sims has helped us to further our mission of enhancing the quality of life and holistic growth of older persons.”

Jill Hreben
President & CEO
Otterbein Homes