A Joint Venture (the “JV” or the “Borrower”) led by Hill Valley Healthcare (“Hill Valley”) reached an agreement to acquire a Portfolio of two skilled nursing facilities and one assisted living community (the “Portfolio”). Founded by two experienced skilled nursing industry professionals, Hill Valley is a new healthcare venture formed to own and operate skilled nursing facilities with an emphasis on providing the highest quality of care. Hill Valley’s partner in the transaction (the “JV Partner”) is a national owner and operator of skilled nursing facilities. HJ Sims previously provided $6.025 million of HUD PlusTM mezzanine financing for the JV Partner in January 2018.
HJ Sims was approached by a representative of the Borrower to provide subordinate financing to supplement a first-mortgage bridge-to-HUD loan to fund the acquisition of the Portfolio. As part of its acquisition plan, the Borrower identified and planned to implement multiple operational improvements to reduce expenses and improve financial performance. After implementing the planned operational improvements, the Borrower intended to seek HUD insured debt to refinancing the senior bridge loan.
Given the Borrower’s long-term capital plan to seek permanent financing from HUD, HJ Sims proposed a subordinate HUD PlusTM loan. The HUD PlusTM loan provided additional leverage to fund the acquisition, limiting the out-of-pocket equity requirement from the Borrower. Additionally, the HUD PlusTM loan was structured to meet HUD’s requirements in advance of a future HUD insured refinancing, providing the Borrower flexibility to repay the subordinate loan or have all or a portion of the subordinate loan to remain outstanding after the HUD refinancing.
HJ Sims formed a new single purpose entity to issue taxable securities to fund the HUD PlusTM loan. Funds totaling $3.95 million were raised through the sale of taxable securities through its Private Client Group to its high net worth accredited investors. HJ Sims funded the subordinate loan on July 1, 2019 simultaneously with the Senior Loan.
HJ Sims was able to structure the subordinate HUD PlusTM financing to meet the needs of the Borrower, as well as the requirements of the senior lender and a future FHA-insured refinancing. The HUD PlusTM structure maximizes leverage and carries a fixed interest rate, ensuring a fixed capital structure upon a refinancing with HUD. Additionally, by structuring the loan to remain outstanding after a HUD insured refinancing, the HUD PlusTM loan allows the Borrower to avoid potential transaction costs associated with refinancing the subordinate debt.