Arbor Glen

Pension Fund Guaranty Replaces Participant Letter of Credit Bank Commitment

In September 2009, Arbor Glen (Bridgewater, New Jersey) with the help of Fairmount Capital Advisors and Herbert J. Sims & Co. closed an approximate $8 million participation in the Sovereign Bank letter of credit. A pension fund is the new participant in the Sovereign Bank letter of credit. The pension fund replaced another bank which did not renew its participation. The fund provided collateral in the form of fixed income securities to secure its obligation to make payments to Sovereign Bank.

Arbor Glen is a not-for-profit New Jersey continuing care retirement community which includes 202 independent living units, 35 assisted living units, 12 enhanced living units, and 59 skilled nursing beds. Arbor Glen issued bonds in 2004 to refinance a portion of its outstanding debt. The Series 2004 bond issue consisted of $36.5 million of letter of credit enhanced variable rate bonds. A participant bank provided a commitment for approximately $8 million of the letter of credit, while Sovereign Bank provided the remainder. The letter of credit was due to expire in the summer of 2009.

Arbor Glen - Bridgewater, NJ

In early 2009, Sovereign Bank proposed a renewal 2-year letter of credit. However, the participant bank could not renew its commitment on the $8 million beyond the expiration date. Thus, Arbor Glen and Fairmount Capital Advisors, its financial advisor, worked with Sims to request alternative proposals for the letter of credit in hopes of more favorable terms.

Sims and Fairmount contacted national and local banks seeking various options: a replacement letter of credit, a replacement participating bank, or bank qualified bonds to refinance the outstanding Series 2004 debt. With banks experiencing capital constraints, none offered replacement letters of credit or bank qualified bonds for the full amount. Those that considered offering proposals for the full amount proposed tighter requirements than the renewal terms. Therefore, Fairmount and Sims narrowed the request to a replacement participating bank and sought out other local banks while Fairmount introduced the pension fund to Arbor Glen. The pension fund provided favorable terms and reasonable covenant requirements.