SOURCE: Cain Brothers & Company, LLC

February 23, 2010 17:04 ET

Cain Brothers Closes Complex Financing for Texas CCRC

NEW YORK, NY--(Marketwire - February 23, 2010) -  Banks are financing senior living projects once again. Cain Brothers, the health care investment bank, announced that it successfully structured and closed a $98 million plan of finance for a large expansion project for Westminster Manor, a continuing care retirement center (CCRC) located in Austin, Texas. 

The complex financing combined short-term tax-exempt bank qualified bonds, a related interest rate swap, a taxable bank construction loan, and long-term tax-exempt fixed rate bonds to fund the CCRC's campus expansion. 

The CCRC's short-term bank debt, which will be repaid from the new entrance fees, consists of $23.4 million tax-exempt bank qualified bonds and a $10.6 million construction loan. In addition to lowering the project's overall interest rate, the CCRC's variable rate debt serves to minimize the size of the related debt service reserve fund and greatly eliminates the negative arbitrage associated with fixed rate bond structures. This is particularly important in today's interest rate environment where the short-term taxable returns on bond proceeds invested during construction produce returns of less than 1.5%, which forces new start-up projects and major expansions to literally absorb tens of thousands of dollars in negative arbitrage during construction, increasing overall costs.

In evaluating the financial cash projections for Westminster, Cain Brothers identified the opportunity to further reduce the long-term debt of the CCRC without compromising its liquidity by incorporating a $5 million six-year bond with a three-year early call option. This will allow Westminster to use excess cash reserves to reduce its debt obligation but not place undue pressure on the CCRC to utilize cash if the project opening is delayed.

Bill Pomeranz, Managing Director of Cain Brothers, said, "The CCRC's financing structure was more complicated to structure and implement than an ordinary fixed rate bond issue, because rights of the short-term lenders had to be coordinated with those of the long-term bondholders. However, the results will provide long-term interest rate savings to Westminster Manor and its residents. Securing a cost of capital for the project of 6.89% and a permanent capital structure that is comparable to investment grade medians, because it is favorably priced and appropriately leveraged, is a result we are proud to have delivered to our client."

Contact Information

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    Bill Pomeranz