sims purchases mezzanine loan from lender

opportunity

Sims was approached by the senior lender regarding its interest in purchasing its Mezzanine Loan for Devonshire at PGA National after it closed on the acquisition financing in May, 2007. The acquisition financing allowed the Borrower, SHP Senior Living Investments, to secure an 82% loan to value debt

Devonshire at PGA National

challenges

The challenges were: (1) purchasing a Mezzanine Loan in a very difficult credit market due to the subprime mortgage crisis; (2) creating a structure that minimized downside interest rate risk while receiving interest at a floating rate; and (3) the ability to close on the Mezzanine Loan purchase in multiple phases.

solution

The solution required first, the ability for Sims to craft workable intercreditor and participation agreements. Second, Sims was able to purchase an interest rate floor on a portion of the Mezzanine Loan to minimize the downside interest rate risk and to offer a fixed rate to some of its investors. Third, Sims created a single-purpose entity which was capitalized through the placement of a combination of taxable fixed and variable rate bonds; Sims is selling the bonds to its extensive, accredited investor network and to an institutional partner. The purchase includes multiple series of bonds purchased in phases.

Sims’ structure was attractive to the senior lender for several reasons: (1) since the investment is made directly by a Sims-controlled entity, the senior lender benefited from Herbert J. Sims & Co.’s extensive high-net-worth client base without having to communicate with a number of syndicate participants; (2) allowed the senior lender to sell its position in a Mezzanine Loan in a difficult credit market; and (3) confidence in Sims’ performance permits the transaction to close in multiple fundings.

result

The taxable bonds placed by Sims are allowing the senior lender to sell off its first loss position and for Sims’ clients to have the opportunity to invest in a highly-regarded CCRC on a mezzanine basis.