Redstone Village

sims completes refunding and expansion for redstone village

On May 8, 2007, Sims closed a $63,480,000 financing for Redstone Village , a lifecare CCRC opened in 2004 in Huntsville, Alabama. The financing refunded the community’s Series 2002 Bonds, underwritten by Sims to develop and construct the community, and provided approximately $9.5 million for an expansion of its facilities.

description

The financing capped the successful start-up and stabilization of the community, which has faced significant challenges in its history. Because of the extensive military and government presence in the Huntsville area, Redstone was originally designed to be a retirement community for military officers only. In response to an initial slow rate of sales, however, in 2003, the community was made available to all age- and income-qualified individuals. Currently, Redstone Village includes 104 independent living apartments and cottages, 50 assisted living suites and 40 skilled nursing beds. As of March 31, 2007, 90% of all available units in the community were occupied. The financing will fund the construction of 8 new independent living apartments, ten assisted living units and various additional commons areas. Future expansions, including development of stand-alone dementia care facility, are planned.

The original financing, closed in November 2002 and consisting of $54,385,000 in variable rate, adjustable rate and fixed rate tax-exempt bonds was underwritten by Sims after the last-minute withdrawal of the investment bank initially retained by the company. Sims completed the financing within 60 days of being retained.

challenge

Subsequent to the financing, Redstone Village and Greystone Communities, Inc., its development and management company, faced a number of challenges, including long construction delays and construction cost overruns; in addition, marketing, sales and fill-up were adversely affected by the failure and eventual bankruptcy of the other entrance fee community in Huntsville, which had opened while Redstone was under construction. In 2006, with the assistance of Sims, Redstone renegotiated the terms of the letter-ofcredit supporting its variable rate bonds, allowing entrance fees to be used for construction cost overruns and certain operating expenses.

During 2005 and 2006, Sims met with the Board of Directors and Management of Redstone Village numerous times and provided a number of possible alternatives for restructuring, refinancing or otherwise reducing annual debt service; a variety of options were considered. As 2006 began, it became apparent that the relatively low interest rates and flattening yield curve could provide an attractive environment for refunding of the 2002 bonds, as well as providing funds for the expansion, an important priority for the community. In October 2006, Sims was retained to structure and underwrite a refinancing of the bonds.

solution

Taking advantage of widespread demand for CCRC bonds, the favorable interest rate environment and the successful ongoing fill-up of the community, Sims suggested an all fixed rate financing, with the final maturity extended to 35 years, to 2043; with this structure, the community could lock in a favorable cost of financing for an extended period of time.

The challenge for Sims was to place the bonds with pricing that reflected the current strength, beautiful campus and location and strong management of Redstone Village despite a number of challenges, including the difficult early history of the community. In addition, not only the competitor in Huntsville but other communities in Alabama also have defaulted on their bonds or are otherwise experiencing difficulties. The company is also engaged in a property tax dispute with the local county; the outcome of this issue is unclear. While Redstone Village has made steady progress toward full occupancy, and its financial forecast is strong, several units remain unsold. All of these factors could present concerns to potential investors.

Sims overcame these issues with aggressive marketing of the bonds to institutional and retail investors, providing site visits, telephone conference calls that included representatives of the Redstone Board and Management and Greystone Communities, as well as collateral information regarding the strong Huntsville economy and its prospects for the future. As a result, the bonds were priced favorably, with a 35 year maturity yielding 5.6% and an average coupon of 5.5%. Excluding the expansion, the refunding provided cash flow savings averaging more than $200,000 annually through 2033.

Redstone Village is now successfully positioned to serve its residents and to continue to grow in the future.