Wesley Commons

5.30% non-rated 30-year refinancing in south carolina

On October 4, 2006, Sims completed a $35,195,000 non-rated tax-exempt bond issue for Wesley Commons in Greenwood, South Carolina with a 30-year bond yield of 5.30%.

background

Founded in 1969 as the Greenwood Methodist Home, Wesley Commons initially consisted of a 102-bed nursing home. During the 70s, 80s and 90s the community went through several expansions adding 117 independent living units to the campus. In 2000, a major expansion added another 91 independent living units and 46 assisted living units, including a 12-unit facility for memory impaired residents. Wesley Commons is home to approximately 450 residents and is affiliated with the South Carolina United Methodist Church and the Greenwood Heritage Foundation.

Wesley Commons - Greenwood, SC

challenge

Wesley Commons had two bond issues outstanding and was paying 7.75% to 8.00% on more than 90% of its bonds. Having reached stabilization in late 2005, Wesley Commons was in a great position to refinance. Since their existing bonds were not callable until 2010, an advance refunding would be necessary. In order to pay off the existing bonds, the proceeds of the advance refunding bond issue would need to be invested in a refunding escrow until the call date of the existing bonds in 2010. To achieve the desired savings, Wesley Commons would need to maximize the yield on the four year refunding escrow while obtaining favorable long-term rates on the new bonds.

implementation

Over the course of three years Sims worked very closely with Wesley Commons to prepare for the day that Wesley Commons would be in a position to refinance its debt and realize significant savings. In 2004, Sims refinanced a small portion of Wesley Commons’ short-term debt by issuing long-term refunding bonds that shared the same call date as a much larger series of bond issued four years earlier. Since the financing in 2004 Sims and Wesley Commons diligently monitored the market and analyzed the timing for the ultimate refinancing of all of Wesley Commons’ bonds. Recognizing that long term rates were approaching their historical low and a flattening yield curve could allow Wesley Commons to meet and exceed its refinancing objectives, Sims and Wesley Commons worked diligently to prepare to issue bonds in October of 2006. The flat yield curve enabled Wesley Commons to invest the escrow at a high rate, thereby mitigating much of the negative arbitrage that is often associated with an advance refunding.

result

The strategy paid off, and Wesley Commons was able to realize savings of $4.4 million on a net present value basis. The financing provided Wesley Commons with 14% net present value savings and value debt service savings of approximately $450,000 through 2031. Wesley Commons’ strong credit quality also qualified them for very favorable covenant modifications for its new bonds. The significant cash flow and present value savings provided by the 2006 bond issue will allow Wesley Commons to greatly improve its financial strength and expand its ministry.