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2016 Debt Restructure for “XYZ Senior Living”

The Situation

Since the mid-1990s, XYZ Senior Living, Inc. (“XYZ”) has operated a continuing care retirement community providing independent living (IL), assisted living (AL) and skilled nursing (SN) accommodations and services to the local market. The community currently operates approximately 150 apartments of which approximately 50% are IL apartments, 7% are IL cottages, 23% are AL beds, and 15% are SN beds. The campus is located on approximately 50 acres of property and approximately 25 miles from a major sunbelt city.  In 2008-2009, the housing crisis and economic downturn began to impact occupancy in the IL service line, and ever since that time management has worked tirelessly to grow occupancy and cash-flow from operations. Despite their best efforts, the community was not able to generate sufficient funds to meet debt service, grow the Mission, pay for needed capital expenditures and make other investments. The majority of the available cash flow was used to pay the existing lender. XYZ never made a late payment or indeed missed a payment. However, only a limited amount of cash was available to meet the needs of the growing deferred maintenance to keep the community physically attractive in an increasingly competitive market.

The Hamlin Solution

After a thoughtful and careful assessment of true occupancy levels that could be expected in the future, XYZ management and Hamlin generated a pragmatic picture of future cash flow. This amount of future cash flow allowed for a sensible amount of debt that could be realistically supported.  The refinancing funds provided by Hamlin were significantly less than the balance of the outstanding loan and swap obligations.  The lender was willing to accept this lower amount because of the certainty of payment, sensible supporting analysis, and the ability to close in an expedient manner.

Approximately 120 days after contacting the lender, XYZ closed on a new 30-year tax-exempt bond that resulted in approximately 35% reduction in debt obligations, provided for a significant capital expenditure reserve, and financed a new cottage construction program to jump-start the IL marketing program. The ownership, governance, and management of XYZ were unchanged.