A spectacular $229 million bond default in 2011 by The Clare, a luxury senior living community sponsored at the time by the Franciscan Sisters of Chicago Service Corporation, hasn’t deterred an affiliated Catholic senior living organization from seeking $160 million in tax-exempt bond financing.
Like many other senior living providers, both non-profit and for-profit, Franciscan Communities Inc. wants to take advantage of current low fixed interest rates, says the Illinois Finance Agency in a document detailing its agenda for a Tuesday board meeting, during which the bond proposal was approved.
It remains to be seen whether the bankruptcy and eventual sale of the Franciscan Sisters-sponsored Clare at Water Tower in Chicago will deter bond investors from providing financing for Franciscan Communities, which currently consists of seven communities.
Part of the bond financing proposal includes adding University Place, Inc. to the Franciscan Communities Obligated Group, which would then consist of five Chicago-area communities, another two in Indiana, and one in Ohio.
The not-for-profit organization plans to use the proceeds from a Series 2012 Bond issuance to restructure about $127.7 million in existing debt issued through the Illinois Finance Authority, the Indiana Health Facility Financing Authority, and Cuyahoga County; fund about $25 million of new projects in some of the organization’s communities; repay a short-term note; establish a debt service reserve fund; and pay for the cost of issuance associated with the bonds, using fixed and variable rate debt, according to Illinois Finance Authority documents.
When the Clare at Water Tower defaulted on its debt last year, leading to the continuing care retirement community’s $53.5 million bankruptcy sale to Chicago Senior Care, the Franciscan Sisters of Chicago Service Corp. organization was not legally obligated for the bonds. While the FSCSC contributed more than $14 million to the development and financial support of the community at the time of the bankruptcy filing, the eventual sale left bondholders recouping just pennies on the dollar.
The Clare’s financial difficulties were attributed to the economic downturn, which impeded many seniors’ ability to sell their homes and leverage enough home equity to afford the community’s entrance fee.
The Illinois Finance Authority’s Credit Review Committee has approved the Franciscan Communities’ bond resolution, citing no IFA funds at risk and no extraordinary conditions.
Franciscan Communities would secure the $160 million bond financing with a gross revenue pledge under a Master Trust Indenture and a mortgage or leasehold mortgage on all of its properties, the IFA documents indicate. The proposed obligated group of Franciscan Communities and University Place is not currently in default on any bonds and hasn’t missed a payment date for bonds in the past three years, notes the IFA.
Ron Tinsley, CFO of the Franciscan Sisters of Chicago Service Corporation, says he hopes the Clare’s default and bankruptcy won’t affect the Franciscan Communities’ bond placement, especially since it’s a much different situation.
“The Franciscan Communities is a stabilized portfolio of properties,” he told SHN. “It’s not a start-up, and this financing has no start-up activities. It doesn’t have the real estate risk associated with the Clare at Water Tower.”
Although Franciscan Communities was not involved in The Clare and did not have any financial interests in the Chicago community, the organization “recognizes that The Clare’s bankruptcy may impact how potential lenders and bond investors view FC as a credit,” said FSCSC in a statement. “However, FC believes that those same lenders and investors will analyze the bond issue on FC’s financial strength.”
Up to $120 million of the proposed financing will be sold as fixed rate bonds with interest rates expected to range between 2% to 5.5%.
BB&T Capital Markets will underwrite and market the bonds, for which the Illinois Finance Agency is expecting a BBB- Fitch rating. The bonds will mature no later than Dec. 1, 2047.
Editor’s note: In a previous version of this article, Senior Housing News incorrectly stated that the Franciscan Sisters of Chicago Service Corp. defaulted on the Clare at Water Tower’s debt. However, the FSCSC was not legally obligated for the Clare’s debt and so were not in default. We regret the error, and have updated the article to reflect the current situation.
Written by Alyssa Gerace