The market may finally get a chance to find some yield in the primary this week with a continuing care retirement community deal set to price either Thursday or Friday, according to market participants.
The anticipated $104.28 million revenue bonds issued by The Mayor and Common Council of Westminster, Md., to finance the construction of The Lutheran Village at Miller's Grant, Inc. and the underwriter, Herbert J. Sims, expected the deal to yield between 5% and 6.5%, according to Sims' website.
Those familiar with the CCRC sector will probably be surprised by the low yields, said two traders. The sector, whose financial success is intimately tied to the housing market, spooked the market in 2008 and 2009 with high default rates attributed to the collapse economy and housing market.
Now with a rosier economic outlook and a scarcity of yield, investors have warmed back up to the historically plagued sector, as evidenced by the increase in CCRC issuance in 2014, said a Midwest based trader.
"It's demonstrative of the cheap cost of capital," the trader said. "You have a fantastic cost of capital for CCRCs that are structured and sold correctly."
The nonrated deal will offer $61.26 million of Series 2014A long term fixed rate debt with maturities ranging from 2024 to 2044, according to the deal's preliminary official statement. The remaining roughly $39 million will be offered as shorter term temporary debt with maturities ranging from 2019 to 2013, according to the POS. The payment of these bonds will be backed by entrance fees and residence charges.
The community is currently 80% pre-sold and slated to open in late 2015, according to Sims' website. The facility will house 241 independently living units, 20 assisted living units, and 12 skilled nursing beds, according to Sims.
While the project is new construction, usually a "red flag" for CCRC investing, it does have the Carroll Lutheran Village as its sponsor, giving investors faith that the project will be well run, both operationally and financially, said the Midwest trader.
San Diego County of Regents Transportation will also tap the negotiated market for $350 million of sales tax revenue bonds on Thursday, led by Bank of America Merrill Lynch, according to data provided by TM3.
Raymond James & Associates will price $176.3 million of Miami Beach Health Facilities Authority revenue refunding bonds in the negotiated market on Thursday. The bonds mature from 2015 to 2044. The deal is rated Baa1 by Moody's and BBB by Fitch.
