Herbert J. Sims & Co., Inc. - Presbyterian Homes, Inc.

Presbyterian Homes, Inc.

remarketing of radian-insured bonds in a volatile market

description

Presbyterian Homes, Inc., originally known as Presbyterian Homes of Central Pennsylvania, began serving seniors in 1927. Presbyterian Homes, Inc. is now a subsidiary of PHI, whose affiliated corporations own and/or operate nine CCRCs in Pennsylvania, one CCRC in Delaware, one CCRC in Maryland, as well as three free-standing nursing homes, four independent living facilities, two assisted living facilities, and an adult day care center. PHI, through its affiliate corporations, serves over 4,000 senior adults annually throughout Pennsylvania and in Maryland, Ohio and Delaware. Presbyterian Homes, Inc. is rated “BBB+” by Standard & Poor’s.

challenge

Presbyterian Homes, Inc. had $16.8 million of outstanding variable rate bonds, insured by Radian Asset Assurance, Inc. (“Radian”), that were in a one-year term rate mode that had to be remarketed in a new interest rate mode by the end of November 2007. In an overall volatile interest rate environment, the tax-exempt bond market has been particularly affected by renewed skepticism of municipal bond insurance, where certain companies are heavily exposed to poorly performing mortgage securities. While Radian has little exposure to these mortgage securities, in light of this skepticism and a lack of liquidity in the market, Radian-insured variable rate bonds in weekly rate mode have been trading around 6%, even for borrowers with strong underlying investment grade ratings.

solution

Presbyterian Homes, Inc. decided to reset its Radian-insured variable rate bonds in a one-year term rate mode to mitigate against its exposure to the extreme interest rate volatility in the weekly rate mode. The Corporation also felt that the subsequent 12 months would provide time for the market to stabilize and for Presbyterian Homes, Inc. to determine a prudent strategy for its Radian-insured bonds. Sims agreed to take over as successor remarketing agent after the previous remarketing agent expressed concern about executing the proposed solution.

implementation

Sims worked closely with Radian to educate prospective buyers of the Presbyterian Homes, Inc. bonds of the stable outlook for Radian affirmed by Moody’s and Standard & Poor’s. Sims also emphasized the strength of Presbyterian Homes, Inc.’s strong underlying credit, as evidenced by its “BBB+” rating.

result

On November 29, 2007, Sims successfully remarketed Presbyterian Homes Inc.’s Radian-insured variable rate bonds in a one-year term mode at a rate of 4.25%. Sims was able to step in as remarketing agent, remarket the outstanding bonds in a difficult market and secure a favorable interest rate.