Aviv Centers for Living is expected to close Friday on $50 million in financing that will centralize its skilled nursing and assisted living facilities onto a single campus.
Expected to close on Friday, the financing will fund construction of a new 144-bed replacement skilled nursing facility on the Peabody, Mass., campus and refinance about $17 million in outstanding debt on the assisted living facility. The company said it expects to save $8.5 million in interest costs over the first five years of the loan as a result of the transaction.
“Each percent less on Aviv’s cost of capital is $500,000 that we are able to spend on delivering high quality health care services. Aviv put together the A Team and was relentless in presenting our credit worthiness to our banks,” said Stephen H. Neff, Aviv’s President and Chief Executive Officer.
During a year that has seen few non-investment grade health care bond issuances come to market, it’s an encouraging sign that things are starting to turn around. According to data from Thompson Reuters, only $566 million of letter-of-credit-backed bonds were issued in the first quarter of 2011, compared to an average of $29.2 billion done annually from 2006 through 2010.
Aviv’s bonds are supported by two $25 million bank letters of credit, one provided by M&T Bank and the other by Citizens Bank. The short-term ratings on the bonds are the highest available from Moody’s said the company.
A swap on the majority of the variable-rate bonds is expected to fix the interest rate below 5 percent. According to the company, the effective rate is more than 3.5 percentage points lower than what it might have been able to achieve via unrated, unenhanced bonds, saving the community over $1.7 million in interest each year for a total of $8.5 million over just the first five years.
“It’s a remarkably low cost of capital, especially for a senior living provider and especially in this credit environment,” said Tanya K. Hahn, Senior Vice President of Lancaster Pollard, the specialty investment bank that structured and underwrote the transaction. “The new corporate financing structure actually sets Aviv up to grow financially stronger as time passes. They’ll be setting aside cash every year and serving residents on a more efficient and modern campus with new service lines. The next time they need to fund a project, they should have an even more appealing credit profile than they do now, which means even better access to affordable capital down the road.”