Center for Nursing & Rehabilitation

despite $100,000 minimum denominations, sims provides a low interest rate financing with minimal covenants

challenge

The Center for Nursing & Rehabilitation Inc. (“CNR”) consists of a 320-bed nursing facility, a 40-bed short-term rehabilitation unit and a nearby three story building with offices and a licensed adult day health center in Brooklyn, New York. CNR also operates community programs including long-term home health care. The 320 nursing beds include 144 two-bed (semi-private) rooms and 32 single bed (private) rooms. CNR provides physician services and physical, occupational and speech therapy and operates a 40-bed short term rehabilitation unit.

The original nursing facility opened in 1978, and CNR substantially renovated the building in 1997 with FHA insured tax-free bonds. The FHA rules and regulations did not mesh well with the home health care and other community programs.

CNR selected Sims to advance refund the FHA insured bonds in order to move to the more flexible covenants provided by tax exempt bonds without credit enhancement. The New York City Industrial Development Agency (“IDA”) issued the bonds. The IDA required $100,000 minimum denominations, and purchasers were required to be either accredited investors (as defined in rule 501 of regulation D of the 1933 Securities Act) or qualified institutional buyers (as defined under rule 144A of the Securities and Exchange Commission).

solution

Sims crafted a plan of finance which included $23.15 million of fixed interest rate, non-rated tax exempt bonds. The bonds contain a 20 year maturity and are secured by a) a first mortgage on both the nursing facility and the three story office and adult day health center building and b) a pledge of CNR’s gross revenues.

Sims’ skill and experience in selling $100,000 minimum denomination, non-rated bonds to qualified institutional buyers produced both an attractive interest rate and very flexible loan documents for CNR. The 20-year bonds carry a 5.375% interest. CNR is not required to meet any financial covenants (e.g. no debt service coverage ratio, liquidity covenant or occupancy tests). Bondholder approval is required for additional debt. However, bond holder approval is not required for merger with another corporation or for transfer of cash and investments to another corporation.