Thu 08/12/2021 16:10 PM
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Editor’s Note: Reorg's coverage of Sanctuary LTC LLC is part of an expansion of our municipals-focused offerings. Please reach out to sales@reorg.com for more information. Continue reading below as our Americas Municipals team provides an update on the Sanctuary LTC financial situation and click here to request a trial for access to the relevant documents below as well as our analysis and reporting on hundreds of other stressed, distressed and performing credits.

Relevant Document:
Preliminary Offering Statement

Sanctuary LTC LLC, a subsidiary of Texas nonprofit Preservation Freehold Co., aims to borrow $553.5 million in bonds to finance the acquisition of 26 senior healthcare facilities in Texas and Oklahoma, according to the Aug. 6 preliminary offering statement.

This is not the deal’s first time coming to market, according to sources familiar with the deal. Despite record inflows and a reach down the credit scale for yield, investors still snub the deal because of high leverage and complicated structure, the sources added. Pricing is expected the week of Aug. 23, according to the market sources.

Sanctuary first tested the market in February 2020 just before Covid-19 swept through the capital markets, sending investors on a flight to safety, the market sources said. BB&T brought the deal to market in February 2020, shortly after its December 2019 merger with SunTrust. The merged banks are now known as Truist, and for the current offering, the borrower enlisted Hilltop Securities as lead underwriter.

The underwriters quietly marketed the deal over the past year to a handful of potential anchor accounts, but with little appetite from the investors, they declined to wade into the market until now, the sources said. The chunky capital structure with senior and subordinate tiers gives investors pause because similar multi-lien capital structures for comparable CCRCs recently defaulted, said the sources. These names, as reported by Reorg, include Eagle Senior Living, H-Bay Ministries Inc. and Woodland Towers.

A common issue across recently defaulted CCRCs was low forecasts for days cash on hand, a covenant used to measure liquidity, said the sources. Sanctuary’s forecast days cash on hand for the fiscal years ending Dec. 21, 2021-’24 are as follows: 39, 42, 60 and 80, according to the offering statement. These numbers are an improvement from the 2020 assumptions, and occupancy forecasts have also increased, the sources said.

Occupancy for Sanctuary’s portfolio of 26 properties in the deal surpassed 80% as of July 4, according to market sources. This is an improvement from the portfolio’s 2020 low of 74% as of the fourth quarter last year, the sources said. Nationally, occupancy still hovers in the 70th percentile, so Sanctuary recently pulled ahead of the national average, the sources added.

While Sanctuary will seek property tax abatement after the deal closes, failure to obtain the abatement will hurt its ability to pay operating expenses and debt service on the Series 2021 bonds, according to the official statement. The feasibility study in the offering statement notes property tax exemption is assumed but that no property tax exemption has been granted or approved, said the market sources. Property tax exemption not yet granted poses a negative risk to investors, the sources added.

The bonds are secured by a pledge of all gross revenue, mortgage and security interest from the borrower, a debt service reserve fund, and maximum annual debt service, according to the official statement. The offering statement shows the revenue fund flow as follows:

New Hope Cultural Education Facilities Finance Corp. is issuing the senior living revenue bond deal in the following structure:

All bond series are tax-exempt except for the Series 2021A-2 bonds, according to the official statement. The transaction decreased to $553.5 in bonds to acquire 26 properties in 2021 from $689.7 million in bonds to acquire 28 properties in 2020, according to market sources.

In addition to acquiring the properties, the proceeds of the bonds will fund certain capital expenditures, fund separate debt service reserve funds for the senior and second tier bonds, and pay the costs of issuance. Preservation Freehold Co., Sanctuary’s parent company, created a separate operating company and a separate property company for each facility.

--Anastasia Bergeron
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