Herbert J. Sims & Co., Inc.

Jerome Home and Mulberry Gardens Financed Simultaneously

10-year forward swaps combined with new bond issues lower capital costs

description

Jerome Home - New Britain, CT

Jerome Home , a 116-bed multi-level nursing facility in New Britain, CT, and Mulberry Gardens of Southington, a 93-unit community offering care for those in need of assisted living and memory care services, in Southington, CT, are both affiliated with Central Connecticut Health Alliance, Inc. , which includes community hospitals, long-term care facilities and other health care entities. As there are no assisted living facilities in New Britain and sufficient demand exists, Jerome Home planned to add a 62-unit assisted living facility to complement its other levels of care.

challenge

Jerome Home needed to finance its assisted living project while construction costs kept increasing; so it was imperative that financing costs were kept down. As for Mulberry Gardens, it had a balloon payment due on its debt in just over one year. The main goals of the two entities were to finance simultaneously to keep costs down overall, not cross-collateralize the two facilities, and to obtain low capital costs while minimizing risk.

implementation

Mulberry Gardens - Southington, CT

Herbert J. Sims & Co., through a competitive process, secured a letter of credit to enhance tax-exempt bonds for each entity. The bank which enhanced Jerome Home’s outstanding debt became very aggressive on pricing to ensure that it continued its relationship with Jerome Home.

In the summer of 2006, the swap market was solid and the premium for a forward swap was miniscule. Both Jerome Home and Mulberry Gardens hoped to take advantage of low fixed rates offered through swaps. Sims competitively bid out a forward, percentage of LIBOR swap for the two entities in the summer of 2006 which took effect in April, 2007.

result

Jerome Home and Mulberry Gardens issued variable rate bonds on March 29, 2007 to finance the Jerome Home project, refinance Jerome Home’s outstanding bonds and refinance the Mulberry Gardens’ loan. Through the transaction, Jerome Home reduced its letter of credit fees by 40 basis points, to an annual fee of 35 basis points.

In addition, Jerome Home and Mulberry Gardens secured a 10-year forward swap at rates of 3.72% and 3.75%, respectively. The all-in interest rate, when including letter of credit and remarketing fees, is 4.15% for Jerome Home and 4.18% for Mulberry Gardens.