CHICAGO — The Illinois Finance Authority board advanced plans this week for more than $550 million in health care-related deals, including the Clare at Water Tower’s tender and exchange offer that is part of a debt restructuring aimed at giving the struggling retirement development more time to succeed.
The original $229 million deal for the Clare in downtown Chicago was issued through the IFA in 2005 with Ziegler Capital Markets Group serving as underwriter. The issue included $91.5 million of fixed-rate bonds, $125 million of variable-rate bonds and $12.5 million of taxable variable-rate bonds.
Under the deal struck with investors, the borrower will issue $91.5 million of new bonds with the A, B and C holders receiving from the series 2010A Bonds a principal amount equal to 70% of the principal amount of the prior bonds and from series 2010B a principal amount equal to 30% of the principal amount of the prior bonds. The new Series A bonds are $64 million and the B series is for $27.5 million, according to IFA documents. The new bonds are also fixed-rate with the B series structured as capital appreciation bonds that don’t pay interest until maturity.
The original $125 million of variable-rate Series 2005D bonds and $12.5 million of taxable variable-rate Series E bonds are not part of the restructuring approved by the board. The borrower has reached a restructuring agreement with its letter of credit banks on the D and E series but that deal was not on the IFA agenda.
“Interest rates on the Series 2010A bonds will be identical to the interest rates on the prior bonds at the time of issuance and the Series 2010B bonds will accrete at 5% per annum compounded semiannually,” according to IFA documents.
“The consummation of the bond exchange and the resulting reduction in the borrower’s annual debt service requirements is expected to improve the borrower’s financial performance and condition and increase its ability to generate sufficient cash flow to pay debt service and meet its other obligations, thereby reducing the risk of a default and its uncertain consequences,” IFA documents read.
The Clare first disclosed it had reached a restructuring agreement with investors in February. The residential complex has failed to meet projections due to cost overruns, construction delays, and faltering occupancy rates and was forced to draw $554,000 from its debt service reserves to cover the debt service payment due last Nov. 15 on the $91.5 million of fixed-rate bonds.
The bonds are secured by a pledge of project revenues and a leasehold mortgage. Bank of New York Mellon Trust Co. is the trustee. The LOC banks have agreed to extend the expiration dates on the LOCs to 2014 and an out-of-court exchange offer for the bonds would also occur after the expiration. The LOCs on the deal currently expire in December, according to the original offering statement.
The project suffered from overruns as construction costs rose due to the building’s foundation and other problems were discovered as building proceeded. The problems led to a delay in the project’s opening date in late 2008, which coincided with the collapse of the housing market. The recession sapped the interest of some potential residents and negatively affected others, who had pre-sale contracts but needed to sell their existing properties in order to move into the Clare.
IFA documents reported that the first residents moved into the facility in December 2008 and that as of January, only 78 of the independent units were occupied, a figure far short of the 235 independent living units that were projected to be filled in the feasibility study.
Jones Day is serving as bond counsel and financial advisers include Mesirow Financial Interim Management LLC and Cain Brothers & Co. LLC.
In other business, the Finance Authority’s board gave preliminary approval to Peoria-based OSF Healthcare System’s plan to issue up to $160 million of debt this summer that would raise $25 million in new money towards the cost of its new corporate data center in Peoria. The remainder would refund $140 million of variable-rate bonds, allowing the system to shift to a fixed-rate mode. OSF will contribute $12 million in cash towards the refunding.
The refunding would include $75 million from a 1985 transaction, $46 million from a 2001 deal and $20 million from 2007.
The system currently carries ratings of A from Fitch Ratings and Standard & Poor’s and an A2 from Moody’s Investors Service. Bank of America Merrill Lynch is the senior manager and Cabrera Capital Markets LLC is a co-manager. Independent adviser Anne Donahoe is advising the system and Jones Day is bond counsel.
OSF operates five hospitals and one continuing care and nursing home center in Illinois, including its largest facility, the 616-bed St. Francis Medical Center in Peoria. It also operates one hospital in Michigan.
The authority also gave preliminary approval to NorthShore University HealthSystem’s $160 million sale planned for this summer that would allow it to refund existing variable-rate bonds, swapping to a fixed-rate structure, and to cover the estimated $21.5 million costs of terminating two fixed payor swaps.
The underwriting team includes JPMorgan, Barclays Capital Loop Capital Markets LLC and Wells Fargo Securities. Jones Day is bond counsel.
NorthShore is the parent of four hospitals that serve the north suburbs of Chicago, including Evanston Hospital, Glenbrook hospital, Highland Park Hospital, and Skokie Hospital. They collectively have 916 beds.
The system carries ratings of AA from Standard & Poor’s and Aa2 from Moody’s. The system evolved from an eight-room cottage facility established in 1891 that later moved and became Evanston Hospital.
The IFA board gave final approval to Friendship Village of Mill Creek’s plan to borrow up to $130 million to finance its GreenFields of Geneva continuing care retirement community.
Greenfields is being developed by Friendship Senior Options, which was created in 2003 to serve as the sole corporate member of Evangelical Retirement Homes of Greater Chicago Inc. Greenfields is a stand-alone credit and FSO will provide management services and may provide some credit support in the form of a $3 million liquidity support agreement.
The bonds will be secured by a mortgage and revenue pledge. The deal will include a mix of long term fixed-rate bonds and shorter term adjustable-rate bonds that will be repaid with entrance fees. Ziegler is the underwriter and Peck Shaffer is bond counsel.