BB&T Capital Markets Closes $29,615,000 Bond Financing for For-Profit, Start-Up Project in Florida

Transaction Summary

On May 29, 2014, BB&T Capital Markets closed a nonrated $28,615,000 tax-exempt fixed rate financing and $1,000,000 taxable fixed rate financing for Zerga Development, LLC, and Zerga Management, LLC, a for-profit developer and manager of traditional multifamily housing and hospitality projects. The primary purpose of the financing was to provide funds for the construction of Silver Creek St. Augustine, an assisted living/memory care facility to be located in St. Augustine, Fla. BB&T Capital Markets, through its expertise with non-rated senior living credits and familiarity with healthcare and housing bonds, was able to utilize a form of housing bonds to provide the construction financing for Silver Creek St. Augustine. Through a combination of tax-exempt and taxable bonds, local grants and economic support, as well as defined deferral and subordination mechanics of the management and development fees, BB&T was successfully able to market and place the bond to nine institutional investors along with a strong retail distribution. BB&T Capital Markets was able to leverage its industry leading distribution capabilities and established relationships with institutional buyers to broaden Zerga’s geographic offering and continue their planned growth initiatives.

About the Companies

Located on 21 acres, Silver Creek St. Augustine will initially include 72 assisted living units and 48 memory support units. The assisted living/memory care facility will be a qualified residential rental project, as 20 percent of units will be available for tenants whose income does not exceed 50 percent of the median income in the county. The facility is being developed by Zerga Development, LLC, and is being managed by Zerga Management, LLC, both related to the for-profit owner of the community.

The key principals of Silver Creek St Augustine LLLP and its related entities each have more than 20 years of development and operating experience in housing and hospitality. Since its formation in 2006, the Zerga Development, LLC, has developed several communities in Texas and Oklahoma and with this transaction has branched out into Florida. The management company, Zerga Management, LLC, was formed in 2010 to manage the communities developed. After the first successful financing (Parkview on Hollybrook – Longview, Texas) with BB&T Capital Markets in 2013, Zerga partnered again with BB&T to establish a broader geographical footprint and to address their capital strategy to fund future growth.

Healthcare

BB&T Capital Markets has a highly experienced team dedicated to the healthcare industry. With an annual financing volume that typically exceeds $1 billion in bond issues, loans and direct placements, we have helped hundreds of senior living and acute care clients throughout the U.S. build and achieve success.

About BB&T Capital Markets

BB&T Capital Markets offers an integrated platform of equity and debt underwriting, M&A advisory, corporate banking, equity research and sales and trading. Headquartered in Richmond, Va., with offices throughout the U.S., we have specific expertise within eleven distinct industry verticals including Aerospace, Defense & Government Services; Automotive Aftermarket; Commercial & Industrial; Financial Services; Food & Agribusiness; Logistics & Transportation Services; Healthcare; Education; Energy; Real Estate; and Retail & Consumer. Our commitment to industry expertise, combined with our resources as one of the nation's strongest financial institutions, strategically positions BB&T Capital Markets to build lasting relationships and contribute measurably to the long-term success of our clients.

  • The Glebe, Inc.

    On July 22, 2014, BB&T Capital Markets closed a $41,155,000 financing for The Glebe, a continuing care retirement community (CCRC) north of Roanoke, Va. The 2014 financing allows The Glebe to replace a costly and inflexible capital structure with one that vastly improves income and liquidity, favorably positioning the community for future expansion.

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  • Silver Creek St. Augustine

    On May 29, 2014, BB&T Capital Markets closed a nonrated $28,615,000 tax-exempt fixed rate financing and $1,000,000 taxable fixed rate financing for Zerga Development, LLC, and Zerga Management, LLC, a for-profit developer and manager of traditional multifamily housing and hospitality projects. The primary purpose of the financing was to provide funds for the construction of Silver Creek St. Augustine, an assisted living/memory care facility to be located in St. Augustine, Fla. BB&T Capital Markets, through its expertise with non-rated senior living credits and familiarity with healthcare and housing bonds, was able to utilize a form of housing bonds to provide the construction financing for Silver Creek St. Augustine. Through a combination of tax-exempt and taxable bonds, local grants and economic support, as well as defined deferral and subordination mechanics of the management and development fees, BB&T was successfully able to market and place the bond to nine institutional investors along with a strong retail distribution. BB&T Capital Markets was able to leverage its industry leading distribution capabilities and established relationships with institutional buyers to broaden Zerga’s geographic offering and continue their planned growth initiatives.

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  • Kendal on Hudson

    On May 7, 2014, BB&T Capital Markets closed an $18,000,000 Bank Financing for Kendal on Hudson (“Kendal on Hudson”), which operates a not for profit retirement community in the village of Sleepy Hollow, New York. Proceeds of the financing financed KoH’s Project Renew (as described below). The completion of this financing marked the successful conclusion of KoH’s multi-step capital formation strategy. After the successful closing of the Series 2013 refinancing, BB&T Capital Markets (“BB&T”) continued to work with KoH to formulate the financing plan for “Project Renew”. Project Renew is primarily a repositioning of KoH’s assisted living and skilled nursing health center. The project components will include the addition of 13 safe and secure memory support units (certified as Special Needs Assisted Living Residence or “SNALR”). Of the 13 units, 6 will be certified as Enhanced Assisted Living Residence (“EALR”) in order to allow aging in place. KoH will also add 10 assisted living beds which will all be certified as EALR. Project Renew will also renovate several areas on campus including the fitness/wellness center, resident care center, and outpatient therapy suite. BB&T presented KoH with several financing alternatives, which included both bond and bank financing for Project Renew. Based on the anticipated availability and attractiveness of bank financing, BB&T coordinated a bank solicitation process that included 17 regional and national commercial banks. The solicitation received strong interest from multiple banks in the market. BB&T assisted KoH in theevaluation process of the bank proposals as well as providing a fixed rate bond option. Ultimately, KoH opted to move forward with bank financing and to work with First Niagara Bank, whose proposal was the most attractive, based on “all-in” cost of financing, length of bank commitment, along with loan covenants and terms. KoH was able to secure a “natural” fixed rate of 3.34% with a 10-year put provision and final maturity (and amortization) of 25 years. Amidst the Project Renew financing process, KoH also faced its first annual Fitch rating surveillance review. BB&T worked with KoH to frame the positive impact of the $18 million financing and $3.5 million of equity contribution towards Project Renew on the projected financial ratios and emphasize Management’s continued marketing and operating initiatives. Consequently, Fitch affirmed the “BBB”rating (stable outlook), citing the organization’s solid historical occupancy, operating profitability, and liquidity and its relationship to Kendal Corporation, the parent organization. In addition, Fitch views KoH’s strong independent living occupancy and waitlist demand as a primary credit strength. Although Project Renew presents an elevated debt burden and construction risk, Fitch noted that the project will provide for a wider array of healthcare services. The successful completion of the Series 2014 Bank Loan was an important milestone for KoH, enabling KoH to solidify its long-term capital structure with a new committed banking partner. Kendal on Hudson is now better positioned to serve the aging community in Westchester County, NY.

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  • Wesleyan Senior Living

    Wesleyan Senior Living has a 117-year history of serving seniors in northeastern Ohio, including Cleveland and its western suburbs. WSL is the sole member of Wesleyan Senior Living Obligated Group, which includes Wesleyan Village and Wesleyan Meadows, Wesleyan Senior Living Foundation and Wesleyan Services Corporation. Collectively, WSL Obligated Group has approximately 223 independent living, 115 assisted living, and 154 skilled nursing units and serves more than 725 seniors throughout it operation, providing a range of senior-living and related services at its Wesleyan Village and Wesleyan Meadows campuses and in the broader community. Financing Process and Structure: BB&T has had a multiyear relationship with WSL, and has served as a resource to advise on a variety of initiatives including operating and financial performance improvement activities, strategic planning and board education, along with continued monitoring of WSL’s existing debt (and LOC ank relationship). With interest rate declines continuing through 2012-early 2013 and an upcoming LOC expiration on the Series 2004 VRDBs, BB&T worked with WSL to identify bank and bond refinancing alternatives for the Series 2004 Bonds as well as the outstanding construction and property acquisition loans. Bank financing was identified as the preferred alternative and BB&T assisted WSL with further exploration of bank financing options, focused on a targeted group of banks active in Ohio and providing senior living financing. Ultimately, BB&T worked with WSL to secure a commitment from Huntington Bank for the full refinancing request. Terms of the financing, incorporating a combination of tax-exempt and taxable debt, were attractive and included floating rate and synthetic fixed rate options, an 8-year put and 25-year amortization – WSL ultimately opted for a synthetic fixed rate through the put date and locked in a blended “all-in” cost of financing of 3.95 percent. BB&T also assisted WSL in coordinating the termination of an existing interest rate swap associated with the Series 2004 Bonds and entrance into new swaps with Huntington Bank to implement the synthetic fixed rate financing. Successful completion of the financing in June 2013 was an important achievement for WSL, enabling it to solidify its long-term capital structure (and financial position), with a new committed bank partner, at what proved to be historically low interest rates. It also validated the merits of the long-standing relationship between WSL and BB&T, which enabled WSL to move quickly to take advantage of favorable interest rates and successfully achieve its refinancing goal.

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  • Chandler Hall

    On April 19, 2013, BB&T Capital Markets closed a $21,075,000 Bank Financing for Chandler Hall Health Services, Inc. (Chandler Hall), a nonprofit Quaker-sponsored continuing care retirement community and health services organization in Newtown, Pa. Proceeds of the financing were used to refinance Chandler Hall’s outstanding fixed rate Series 1999 Bonds. The refinancing allowed Chandler Hall to significantly reduce its interest expense, generating expected net present value savings of approximately $3 million, or 12.81 percent of the refunded Series 1999 Bonds. Spurred by continuing declines in interest rates and a current optional call date on its Series 1999 Bonds, Chandler Hall engaged BB&T in May 2012 to pursue the refinancing of its outstanding Series 1999 Bonds. Following its engagement, BB&T identified and presented Chandler Hall with several refinancing alternatives, which included bond financing, bank financing along with a potential combination of the two options. Based on the anticipated availability and attractiveness of bank financing, BB&T coordinated a bank solicitation process that included 20 regional and national commercial banks. The solicitation elicited strong interest from multiple banks and ultimately two proposals meriting the most serious consideration. BB&T assisted Chandler Hall in the evaluation of these proposals along with a comparison to a fixed rate bond option. Ultimately, Chandler Hall opted to pursue the refinancing using bank debt and to work with Fulton Bank, whose proposal was the most attractive, based on “all-in” cost of financing, loan put date, along with loan covenants and terms, Chandler Hall secured a fixed rate of 3.40 percent with a 10-year put provision and a final maturity (and amortization) of 16 years (matching the existing maturity on the 1999 bonds), allowing Chandler Hall to realize significant annual debt service savings while assuming a comfortable level of interest rate and loan put risk. These savings, and their favorable impact on operating profitability, will further enhance Chandler Hall’s financial position and its ability to continue to deliver a broad continuum of services to a large group of constituents along with supporting future organizational growth.

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  • Laurel Lake Retirement Community

    On December 30, 2013, BB&T Capital Markets closed a $50.2 million acquisition financing for Laurel Lake Retirement Community, Inc. The financing included a combination of direct bank financing (taxable and tax-exempt) and tax-exempt bond financing, consisting of $35.9 million of senior taxable bank debt, $9.6 million of senior tax-exempt bank debt, $2 million of tax-exempt subordinate fixed rate bonds and $2.7 million of tax-exempt subordinate adjustable rate bonds and blended “all-in” cost of financing of 5.42 percent. Proceeds of the financing were used to fund the acquisition of Laurel Lake by the Laurel Lake Retirement Community Foundation, Inc.

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  • Brazos Presbyterian Homes

    On December 4, 2013, BB&T Capital Markets closed a $92.5 million debt issuance for Brazos Presbyterian Homes (“Brazos”) consisting of (i) $67,500,000 of Series 2013B fixed rate bonds that were rated “BB+” and (ii) a $25,000,000 bank loan (collectively the “Series 2013 Bonds”). Proceeds of the Series 2013 Bonds will be used to fund a major expansion and redevelopment at one of Brazos’ campuses. The financing structure consists of two series of tax-exempt debt: a short-term bank loan and long-term fixed rate bonds. The shortterm bank loan, which will be repaid from initial entrance fees, was placed directly with BB&T Bank. The selection of BB&T Bank occurred after a bank loan proposal process (which was supervised by an independent financial advisor) was completed that included nine different providers. BB&T Bank was selected as its proposal provided Brazos with the lowest cost of borrowing and most attractive borrowing terms and conditions. In addition to soliciting the short-term bank loan, BB&T Capital Markets assisted Brazos in successfully securing a “BB+” credit rating (stable outlook) from Fitch Ratings. Fitch typically does not provide initial ratings at this level to providers undergoing a $90+ million expansion; however, due to Brazos’ strong financial profile including good occupancy and strong liquidity combined with BB&T’s leadership and positioning of the qualitative aspects, Fitch elected to assign the rating. As a result of the bank participation, credit rating and marketing effort, the fixed rate bonds were well received by the marketplace as there was significant retail demand supplemented by 15 different institutional investors placing orders resulting in a true interest cost of 6.81 percent for the Series 2013 Bonds. Most importantly, maximum annual debt service is more than $350,000 lower than the estimate used in the feasibility study thereby providing Brazos additional cushion in its financial projections.

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  • The Gardens at Spring Shadows

    BB&T Capital markets is pleased to announce the closing of a $23,570,000 fixed rate bond issue for The Gardens at Spring Shadows (The Gardens). The average yield of the tax-exempt bonds was 5.94 percent with a final maturity of 35 years.The proceeds were used by a non-profit to acquire an occupied independent living community on a tax-exempt basis from a for-profit operator. BB&T Capital Markets tailored a financing solution using tax-exempt bonds that allowed Willow Winds, Inc., to acquire The Gardens, a for-profit entity. To accomplish this, BB&T Capital Markets worked with Willow Winds, Inc. to ensure The Gardens met the requirements of a qualified residential rental project as identified in Section 142(d) of the Internal Revenue Code. To qualify under Section 142(d), at least 20 percent of the dwelling units in the community must be occupied by residents of low or moderate income, which is defined as having income that does not exceed 50 percent of the median gross income for the area. By meeting this requirement, Willow Winds, Inc., could use tax-exempt bonds to finance the acquisition. Additionally, BB&T Capital Markets' expertise allowed Willow Winds, Inc., to navigate a rigorous municipal issuer process and obtain an investment grade rating of “A-” with Standard & Poor's using the affordable housing criteria. To keep out-of-pocket costs to a minimum while maintaining the lowest cost of capital possible, two series of bonds were issued: (i) tax-exempt bond issue of $21,785,000 with yields ranging from 4.97 percent to 6.21 percent and (ii) a taxable issue with a yield of 7.00 percent. Market reception for the bond issue was positive as the bonds were oersubscribed and sold to both retail and institutional investors.

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  • Sunnyside Presbyterian Home

    BB&T Capital Markets closed a $10 million tax-exempt fixed rate financing for Sunnyside Presbyterian Home (Sunnyside) in September 2013. In addition to the fixed rate financing, Sunnyside was able to secure $21,845,000 of tax-exempt bank qualified debt (issued through three separate authorities) and $11,770,000 of tax-exempt non-bank qualified debt with a bank. The purpose of the Series 2013 transaction was to refund all of Sunnyside's outstanding debt totaling $36.5 million, as well as providing $7 million for renovations/capital improvements to Sunnyside's existing facilities. Sunnyside made the decision to take advantage of favorable bond market conditions to secure a portion of their capital structure using tax-exempt fixed rate bonds amounting to 25 percent of committed capital. Despite extreme market volatility during the financing, BB&T Capital Markets was able to access the fixed rate market (both retail and institutional buyers) and also obtain bank commitments of up to $50 million from three commercial banks. The receptivity of the fixed rate bond to investors and commercial banks was achievable due to Sunnyside's strong management team and stable occupancy that have produced favorable operational results.

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  • Shepherd of the Valley Lutheran Retirement Servcies, Inc.

    On September 4, 2013, BB&T Capital Markets closed a $28,550,000 bank financing for Shepherd of the Valley Lutheran Retirement Services, Inc. (Shepherd of the Valley), a multisite senior living and services provider based in Austintown, Ohio. Proceeds of the financing were used to refinance Shepherd of the Valley's outstanding Series 2001 credit enhanced variable rate demand bonds (VRDBs) with more cost effective and flexible bank financing along with the retention of an existing interest rate swap and interest rate cap.

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  • Physicians Realty Trust

    Physicians Realty Trust (the "Company") (NYSE: DOC) has completed its initial public offering of 10,434,782 shares of common stock at a public offering price of $11.50 per share, raising approximately $119,999,993 in gross proceeds. Additionally, the Company has granted the underwriters a 30-day option to purchase up to an additional 1,565,216 common shares, increasing the total gross proceeds raised to $137,999,977. The Company intends to use the net proceeds of this offering for the acquisition of identified properties, to pay down existing debt, and for general corporate purposes.

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  • Wesleyan Senior Living

    On June 10, 2013, BB&T Capital Markets closed a $33.484,000 bank financing for Wesleyan Senior Living (WSL), a multi site senior living and services provider based in Elyria, Ohio. The financing was comprised of: 1) $29.9 million tax-exempt direct bank loan (issued through the Lorain County Port Authority) and 2 $3.6 million taxable bank term loan. Proceeds of the financing were used to refinance WSL's outstanding Series 2004 LOC-backed variable rate demand bonds (VRDBs), along with two outstanding construction and property acquisition loans. Financing proceeds also funded a portion of swap termination payment associated with the Series 2004 Bonds. Completion of the financing marked the successful conclusion of a multi-year effort to replace WSL's LOC-backed VRDBs with more attractive bank financing. BB&T has had a multi-year relationship with WSL and has served as a resource to advise on a variety of initiatives including operating and financial performance improvement activities, strategic planning and board education, along with continued monitoring of WSL's existing debt (and LOC bank relationship). With interest rate declines continuing through 2012-early 2013 and an upcoming LOC expiration on the Series 2004 VRDBs, BB&T worked with WSL to identify bank and bond refinancing alternatives for the Series 2004 Bonds as well as the outstanding construction and property acquisition loans. Bank financing was identified as the preferred alternative, and BB&T assisted WSL with further exploration of bank financing options, focused on a targeted group of banks active in Ohio and providing senior living financing. Ultimately, BB&T worked with WSL to secure a commitment from Huntington Bank for teh full refinancing request. Terms of the financing, incorporating a combination of tax-exempt and taxable debt, were attractive and included floating rate and synthetic fixed rate options, an eight year put and 25-year amortization - WSL ultimately opted for a synthetic fixed rate through the put date and locked in a blended "all-in" cost of financing of 3.95 percent. BB&T also assisted WSL in coordinating the termination of an existing interest rate swap associated with the Series 2004 Bonds and entrance into new swaps with Huntington Bank to implement the synthetic fixed rate financing. Siccessful completion of the financing in June 2013 was an important achievement for WSL, enabling it to solidify its long-term capital structure (and financial position), with a new committed bank partner, at what proved to be historically low interest rates. It also validated the merits of a long-standing relationship between WSL and BB&T, which enabled WSL to move quickly to take advantage of favorable interest rates and successfully achieve its refinancing goals.

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