sims finances renovation and expansion for two lifesphere campuses

"Sims’ involvement in the Strategic Plan began in 2005, working with staff and our Board’s Finance Committee, and prudent creativity was applied to the terms of the existing debt as well as the alternatives explored for the new debt. The credit enhancement costs on existing debt were reduced over 10% and covenants gained modest flexibility. Our ‘all-in’ interest rate on the new debt is under 5.0% for the first ten years because of the swaps, and issue costs were managed so no LifeSphere contributions were required. Overall we have had a very good outcome."

Ken Huff
Vice President and Chief Financial Officer
LifeSphere

description

LifeSphere, whose history dates back to 1848 and is formerly known as Southwestern Ohio Seniors’ Services, Inc., owns and operates two continuing care retirement communities: Maple Knoll Village and The Knolls of Oxford. Maple Knoll Village, which opened in 1977, is located on a 54-acre campus in the City of Springdale, Ohio and includes 89 congregate living units, 179 cluster housing units, 60 assisted living units, a 186-bed skilled nursing facility, a wellness center, Medicare certified and non-certified home health care agencies, a Montessori Child Development Center, and a Geriatric Evaluation Center on an outpatient basis.

The Knolls of Oxford, which opened in 2002, is located on 85 acres in the City of Oxford, Ohio, approximately 35 miles northwest of Cincinnati, 2 miles east of the Indiana state line and 1½ miles from the Miami University of Ohio. The Knolls of Oxford includes 80 cluster housing units, 28 assisted living units, and a 62-bed skilled nursing facility.

LifeSphere also operates a senior center, which provides services to approximately 8,000 clients and operates WMKV 89.3 FM (wmkvfm.org), a radio station located on the Maple Knoll campus which has been recognized nationally for its programs geared to seniors.

Proceeds of the Series 2007 Bonds, along with other funds from LifeSphere, will be used for two major projects: (1) the replacement of 30 cottages (built in 1977) with 56 apartments and expansion of dining facilities on the Maple Knoll Village campus; and (2) the expansion of up to 30 cluster housing units and expansion of the clubhouse at The Knolls of Oxford campus.

challenge

While the market for the Maple Knoll Village campus is very strong, LifeSphere has some uncertainty over the market demand for the full expansion contemplated at the Knolls of Oxford campus. As such, the expansion at the Knolls of Oxford campus will be accomplished in two phases. The first phase consists of the construction of 14 cluster housing units and the renovation of the clubhouse, while the second phase will consist of up to 16 additional cluster housing units. Given the uncertainty of the timing of the second phase, LifeSphere was concerned about the cost of carrying any debt for the second phase if marketing was slower than anticipated, but wanted to make sure that it had sufficient monies readily available to start construction on the second phase if it experienced stronger than anticipated marketing velocity.

solution

Sims modeled the financing for LifeSphere to provide for the maximum flexibility to construct the second phase of the Knolls of Oxford when there is sufficient market demand. The Maple Knoll Village repositioning project and the first phase of the Knolls of Oxford are financed with proceeds of the Series 2007 Bonds. Approximately $16.385 million of the entrance fees collected from the Maple Knoll Village project and the first phase of the Knolls of Oxford project will be used to pay down a portion of the Series 2007 Bonds. If LifeSphere moves forward with the second phase of the Knolls of Oxford expansion, $1.750 million of these entrance fees will be used to fund the initial draw of second phase of the expansion. The remaining costs of the second phase will be funded incrementally from entrance fees as the second phase cluster housing units are built and occupied. If the second phase of the Knolls of Oxford does not move forward, the $1.75 million of the initial entrance fees will be retained as additional liquidity for LifeSphere. This finance plan enables LifeSphere to initiate the second phase on its own timing without having to issue additional bonds or a construction loan.

result

LifeSphere issued $28.145 million of tax-exempt letter of credit enhanced variable rate demand bonds. These bonds were issued on a parity basis with LifeSphere’s Series 2002 Bonds, which were also underwritten by Sims. In addition, Sims executed three variable to fixed rate swaps for LifeSphere. The first swap fixed the bonds associated with the short-term redemption of the Series 2007 Bonds and is amortized based upon the expected receipt of entrance fees. The second swap fixed the balance of the Series 2007 Bonds for 10 years, with an option of the swap provider to terminate the swap after five years. The rate Sims secured on this swap with the option was less than the straight five year swap. To take advantage of today’s low swap rates, the third swap was a forward commitment to extend a portion of the Series 2002 bonds which currently have a variable to fixed rate swap in place.