Sims Mortgage Funding, Inc. ended 2013 on a high note when in the last week of the year it closed $23,239,700 in FHA-insured loans processed under the Lean program that refinanced two health care facilities located in Orange County, New York. Elant at Goshen is a 236-bed skilled nursing, assisted living and adult day care facility that was constructed in 1985 and expanded in 1995. Elant at Meadow Hill is a 192-bed skilled nursing facility built in 1973 and expanded in the 1980s. Both facilities are owned by not-for-profit corporations that have common ownership via the same sole member that also serves as the management agent for each facility. The sole member, Elant, Inc., is a major owner and operator of skilled nursing, assisted living and continuing care retirement communities in the Hudson Valley region north of New York City. They also have been a client of Sims Mortgage Funding and HJ Sims since the mid-1990s.
The debt that was refinanced consisted of non-rated, tax-exempt bonds that were underwritten by HJ Sims in 2001 to finance Elant’s acquisition of the properties. The bonds had two separate tranches (Series A and C) issued to Goshen and Meadow Hill respectively. The Series A and C Bonds carried an interest rate of 7.00%. The total amount of outstanding Bonds was about equally split between Goshen and Meadow Hill. However, based on FHA loan sizing criteria, the Goshen loan was constrained by the actual amount of its Series A bonds outstanding, even though the underwriting could have supported a larger loan. Conversely, the Meadow Hill FHA-insured loan was lower than the amount needed to fully prepay its Series C Bonds.
We reviewed the bond documents and noted that the Goshen and Meadow Hill borrowers were jointly obligated to repay all of the Bonds, not just their respective Series. Using this repayment structure as the backdrop, we were able to combine the separate Series A and C bonds into a single debt consideration for FHA, and to allocate a proportionate amount of the outstanding Bonds to each property based on appraised values. Since Goshen had a higher appraised value, more of the repayment of the combined Series A and C debt was allocated to it. As a result, the Goshen loan was increased to contain enough proceeds to fully repay 100% of the Series A Bonds and a portion of Series C Bonds. The smaller Meadow Hill loan provided enough proceeds to repay the balance of the Series C Bonds.
The FHA-insured loans were issued under the Section 232/223(f) program and feature terms of 17.5 years, which matches the remaining terms of the Series A and C Bonds. New York State typically does not allow extensions of refinancing loans beyond the maturity date of the debt being prepaid. The insured loans also contained approximately $343,000 for repairs and $900,000 for deposits into reserve funds for replacements. The refinancing reduced each project’s tax-exempt interest rate by 41.3% and because of the relatively short maturity dates, a smaller percentage of the new debt service payments are being applied to interest. The result is a combined gross interest savings of about $8,260,000. Debt service savings over the combined Series A and C bonds is about $8,130,000.
For additional information about the Elant at Goshen and Elant at Meadow Hill refinancings, please contact us.