Sims Works with Carillon Through Difficult Times to Successful Refinancing

In late December 2005, Sims underwrote a $62,210,000 non-rated bond issue for Carillon, Inc. of Lubbock, Texas that was the culmination of a three year period of recovery for a community that had experienced serious financial difficulty resulting primarily from problems with former management and marketing personnel. The bond issue included an advance refunding of bonds issued in 1999, repayment of interest and principal deferred over a two-year period and funds for renovation of outdated portions of the community. Throughout this period, Sims provided assistance to the Board of Carillon and communicated regularly with Bondholders in order to develop the most effective strategic plan for Carillon and to preserve the interests of the Bondholders.

the goal

Carillon, a lifecare community established in 1979 in Lubbock, Texas, began an extensive program of repositioning and improvement during the mid-1990s. In 1999 Sims underwrote a $43,520,000 financing that provided funding for construction of 85 modern independent living apartments and villas, replacement of an outdated health center, creation of a new assisted living unit and renovation and improvement of common areas.

These projects were completed and the new units became fully-occupied; due to construction delays and management and marketing problems, however, the community reported in 2002 that it would not have sufficient cash flow to meet its debt service obligations. Although a small taxable series of bonds had been repaid as scheduled, operating reserves were substantially depleted, independent occupancy was at less than 77%, and the company was in violation of various covenants in connection with the Series 1999 Bonds.

the solution

After asking Sims for recommendations and retaining the firm to provide certain advisory services, in late 2002 the Carillon Board of Directors requested proposals from several qualified management companies and selected Life Care Services, LLC, which assumed management responsibility in February 2003. During the same period, at the request of

Carillon LifeCare Community

Under LCS’ management, the company began to control expenses and to increase revenues by restructuring existing resident agreements and raising monthly service fees to market levels, at one point implementing an average 30% increase, losing only one resident in the process.

In May 2004, with the assistance of Sims and approval of 92% of existing bondholders, Carillon entered into a forebearance agreement with bondholders, allowing the company to defer payment of a portion of interest and all principal payments due through December 31, 2005. During that period, the company was required to develop a strategic plan for the future, including especially a plan for renovation of its oldest independent living units into marketable modern apartments.

Throughout this period, it was the position of the Carillon Board of Directors that any strategic plan should provide for payment in full of the Series 1999 Bonds.

the result

During the forebearance period, The Board and LCS were able to increase ILU occupancy from 77% to 85%, maintain assisted living and skilled occupancy at more than 95% and increase operating income from a loss of $3 million in fiscal 2002 to a gain of $1.6 million in 2005.

Based on this improved performance, a solid market with no CCRC competition and the commitment by Carillon to continue its management agreement with LCS, in mid-2005 Sims was engaged to underwrite a bond offering that would advance refund the remaining 1999 Bonds, repay all deferred debt service and fees and provide funds for the first phase of renovation of the oldest independent living units, development of space for a local hospice operator and updating of the main kitchen and common areas. The financing, which closed on December 29, 2005, included strict performance covenants designed to ensure that Carillon will remain under strong professional management throughout the life of the bond issue.