Bank credit options are proliferating for senior living borrowers in the post-2009 era, writes specialty investment bank Ziegler after seeing a substantial increase in lending last year for its clients.
Ziegler obtained around $823 million of bank credit for 30 borrowers in 2013, an increase from the previous two years. Much of the growth came in the second half of the year as fixed-rate markets became challenging, says the March Z-News newsletter.
The specialty investment bank’s average deal size was around $22 million last year, although individual transactions ranged from less than $5 million up to nearly $60 million. In 2009, Ziegler says, a bank-qualified program expansion for credit-backed variable rate demand bonds (VRDBs) led to an increase in debt placed directly with banks, “paving the way” for an uptick in activity in recent years.
Direct bank placements, letters of credit backing VRDBs, construction loans, taxable term loans, and other bank lending are all forms of ‘bank credit’ senior living borrowers can access.
“Because of the increasing options, the process for securing bank credit has become more involved,” notes the newsletter, including creating a plan of finance, reviewing capital structure, interest rate structure, and appropriate hedging strategies, along with gathering bank proposals and negotiating on the clients’ behalf.
Around three-quarters—more than $600 million—of bank credit in 2013 was used to address existing debt needs, primarily letter of credit-backed VDRBs.
Borrowers also used bank credit to refund more than $78 million of fixed-rate debt. The volume of bank credit borrowed for “new” money is steadily increasing too, Ziegler says.
“New money borrowing increased nearly 40% in 2013 to over $200 million, as borrowers addressed capital improvement needs and as banks grew more comfortable with project and construction risk,” says Ziegler in the newsletter. “As expected, direct bank purchases remained a key component of bank credit in 2013, growing to 80% of overall bank credit volume.”
Written by Alyssa Gerace