Ziegler is banking on strong demand for high-yield bonds as it gears up to lead what it says is the year's largest muni market continuing care retirement community deal.
The Chicago-based investment bank is underwriting a $240 million transaction scheduled on Tuesday for King Farm Presbyterian Retirement Community to expand its senior living facility in Rockville, Md.
Rockville is the conduit issuer.
A majority of proceeds from the sale, which is rated BB with a stable outlook by Fitch Ratings, will finance a portion of costs for 123 new independent living units for Ingleside at King Farm, 15 miles outside of Washington D.C.
“From a timing perspective for the market we are seeing demand for high-yield bonds,” said Adam Buchanan, senior vice president of institutional sales and trading at Ziegler. “We think we are bringing it at the opportune time to get some decent pricing.”
The transaction features $157 million of economic development revenue refunding bonds and $82.7 million of tax-exempt pay down securities secured by the first 45% of entrance fees for the new units. The existing Ingleside at King Farm community is housed within a seven-story building that includes 245 independent living units, 32 licensed assisted living units and 45 comprehensive care beds.
To address potential investor concerns about occupancy rates, Ziegler conducted a sensitivity analysis showing only a small difference in debt coverage if the occupancy rate drops to 85% on Dec. 31, 2023 compared to 93% it forecasts. Buchanan said the tax-exempt pay down securities provide an additional high-yield opportunity to investors with the short-term debt expected to get paid down by 2022.
Fitch analyst Tipper Austin said in a Sept. 15 report that the BB rating reflects that Ingleside at King Farm’s permanent debt will more double to roughly $157 million as a result of this new project financing. Austin also noted strong regional competition with several retirement communities located within the primary market area of Maryland’s Montgomery County.
Ziegler is lead manager on the deal with H.J. Sims. The financial advisor is PFM with Venable LLP as bond counsel.
Buchanan said Ziegler is planning other large retirement community bond deals in the next few months. The specialty investment bank led a $232.3 million transaction for Buckner Senior Living in Dallas in June.