HJ Sims Assists Multi-Site Senior Living Provider with Multi-Component Refinancing and Precursor to Project Financing
“Jim Bodine and the HJ Sims team were instrumental in assisting Albright Care Services to solicit, explore, and evaluate options related to our long and short‐term debt. Their level of professionalism and expertise guided us to a very successful outcome in our refinancing of bank and bond debt.”
– Shaun Smith, President/CEO, Albright Care Services
Partnered Right®
Albright Care Services (“Albright”) is a not-for-profit, faith-based service organization providing housing, health care and at-home services to older adults in Central PA. Albright is affiliated with the Susquehanna Conference of The United Methodist Church through history and faith, and traces its origin to 1915. Albright’s original campus was based in Lewisburg, PA and has become a CCRC/Lifeplan Community known as “Riverwoods.” Over the years, Albright has undertaken additional growth initiatives, including the development of a second CCRC/Life Plan Community in York, PA (“Normandie Ridge”) along with the start-up and operation of LIFE Programs (“Living Independently for Elders”), Pennsylvania’s version of the nationally recognized PACE (“Program of All-Inclusive Care for the Elderly”), in Lancaster, Lebanon and Lycoming Counties.
RiverWoods, located on a 190 acre site, has been developed and modernized in multiple phases. It is comprised of Residential Living (78 apartments, 53 Garden Cottages), Personal Care and Residential Living (40 apartments), a Nursing Care Center (226 Medicare and Medicaid-certified beds) and the Slifer House Museum. Normandie Ridge, located on a 45 acre site, has been developed in several phases beginning in 1992. It is comprised of Residential Living (87 apartments and 65 garden cottages), Personal Care and Memory Care (36 bed facility, with 18 Personal Care and 18 Memory Care rooms), and Nursing Care (64 Medicare and Medicaid-certified beds). Albright LIFE Centers opened in Lancaster and Williamsport in 2008 and Lebanon in 2011 and currently serve approximately 200 participants, with capacity for 250 participants.
Jim Bodine, representing HJ Sims and prior investment banks, has worked with Albright Care Services, previously known as United Methodist Continuing Care Services, for more than 20 years. This includes work on the earlier Series 1997 Bond financing and more recent Series 2013A & B and Series 2014 Bank financings and related interest rate swap. For the Series 2018 Financing, Albright engaged HJ Sims, as Structuring Agent, to assist with financing a proposed expansion project at Normandie Ridge along with assessing the merits of refinancing of all or a portion of its outstanding debt.
Structured Right®
As noted above, the initial driver for the Series 2018 financing was Albright’s proposed Normandie Ridge expansion project, consisting of additional independent living units and common area renewal, which was in the early stages of development in early 2018. Further, as part of this planning process, Albright, with HJ Sims’ assistance, sought to identify the potential benefits of refinancing all or a portion of its outstanding debt. This totaled $26.44 million and was comprised of four components: Series 1997A publicly-offered Tax-Exempt Bonds, Tax-Exempt Series 2013A Bank Debt, Taxable Series 2013B Bank Debt and Tax-Exempt Series 2014 Bank Debt with a related interest rate swap. Albright’s existing Bank debt was originally placed with Susquehanna Bank, which was later acquired by BB&T in 2015.
Given the nature and amount of financing, Albright opted to focus on bank financing and consider proposals from BB&T as well as a broader universe of commercial banks. Accordingly, HJ Sims led a commercial bank financing solicitation to combine the Normandie Ridge capital needs with refinancing of all or a portion of Albright’s outstanding debt. The amount of debt to be refinanced was to be determined ultimately based on the costs and terms of the Bank proposals. The financing solicitation included BB&T and nearly a dozen other banks active in senior living financing and/or in providing financing to not-for-profit health/human service organizations in the Central Pennsylvania region. The solicitation process was productive, generating multiple competitive financing proposals. After an extensive review process, including the Albright Management and Board, and negotiations with a short-list of banks, Albright selected BB&T to continue as its banking partner.
There were a number of issues to address in the structuring of the financing. These included: 1) phasing of the project financing and refinancing, 2) composition of the refinancing among the various components of outstanding debt, 3) determining the interest rate mode(s) of the financing, considering both floating and fixed rates and interest rate hedging considerations and 4) confirming the covenant and financing security provisions which would have implications for Albright’s future operating, financial and strategic flexibility.
With regard to financing phasing, the clear preference was to combine project financing and refinancing into one transaction to capture financing cost and time efficiencies along with still favorable interest rates in the midst of continued Federal Reserve rate increases. Alternatively, if not simultaneously, consideration was given to completing the financing on a phased basis, with the refinancing to occur first, followed by the project financing. If timing was incompatible, the refinancing and financing would be undertaken as separate financing.
The amount of refinancing was largely dependent on the magnitude of potential debt service savings through reduction in interest cost…and consideration of the economics of any swap termination resulting from refinancing. Interest rate mix, comprised of floating and fixed interest rates, was evaluated based on Albright’s historic mix and experience along with consideration of its current interest rate risk tolerance and prospects for interest rate changes in the intermediate to long-term. Finally, proposed bank covenants were given significant consideration, in combination with loan credit spread and up-front financing costs. This was a significant point of negotiation with the short-list of banks, including BB&T.
Executed Right®
Albright ultimately opted to separate the project financing and refinancing as design/development of the project lagged relative to what had been originally expected. The refinancing finally included the Series 1997 Bonds, outstanding at significantly higher interest rates, and the Series 2013A & B Bank Debt which could also be replaced at a lower interest cost, reflecting a reduced credit spread. The aggregate Series 2018 financing consisted of the Tax-Exempt Series A of 2018 and Taxable Series B of 2018. The Series A of 2018 debt refinanced the existing Series 1997A Bonds and Series 2013A Bank Debt, and amortized monthly to match the latest final existing maturity of the Series 2013A Debt of July 2035. The Series B of 2018 Bank Debt refinanced the existing Series 2013B Bank Debt, and amortized monthly to match the existing final maturity of the Series 2013B Debt of July 2025.
Albright elected to retain its existing mix of floating and fixed rate debt and, accordingly, entered into a floating-to-fixed interest rate swap on the portion of the refinancing relating to the Series 1997A Bonds. Specifically, the 2018 debt was structured to match the interest rate modes of the refunded debt. This was accomplished by partially hedging the Series A of 2018 Debt to provide a synthetically fixed interest rate on the portion of debt that refinanced the fixed rate Series 1997A Bonds. Accordingly, coincident with closing, HJ Sims (and Kensington Capital Advisors, as co-swap advisor) worked with Albright and BB&T to execute an interest swap on $2.87 million of the Series A of 2018 tax-exempt debt to secure interest rate savings on the Series 1997A Bonds. The remaining Series A of 2018 Debt was left unhedged to match the floating rate mode of the Series 2013A Debt. Additionally, the Series B of 2018 Bank Debt matches the floating rate mode of the refinanced Series 2013B bank debt.
Finally, Albright, HJ Sims and Eckert Seamans, as Bond Counsel, conferred closely in assessing the financial covenants proposed by BB&T. They worked constructively with BB&T to come to a mutual agreement on a covenant package that balanced Albright’s objectives with those of BB&T as sole creditor…and also considering the follow-on financing that is anticipated for the Normandie Ridge expansion project.
Financed Right®
On October 4, 2018, Albright closed the $15,907,000 direct bank placement with BB&T, comprised of $14,404,000 of tax-exempt debt and $1,503,000 of taxable debt. The new debt matched the final amortizations of the refunded debt, and extended credit commitments to seven years (through 2025). Beyond the benefits of debt service savings and consolidated capital structure, the refinancing allows Albright to proceed with future expansion ambitions, and plan for organizational growth. It represents a committed and stable source of capital with security and covenant structure that provides clarity to operations and finances going forward along with providing a framework for future growth of programs and/or facilities.
For more information on how Albright was Financed Right by HJ Sims, please contact:
Jim Bodine
(215) 854-6428
Patrick Mallen
(203) 418-9009