Dallas-based Sonida Senior Living on Wednesday announced several steps that the company has taken or plans to take to try to improve its financial position and set itself up for growth.
For one, the company is restructuring the debt financed by Fannie Mae and Ally Bank, which covers 49 of the 62 senior living properties it owns. Sonida entered into a forbearance agreement with Fannie Mae on June 29 and hopes to modify the company’s mortgage loan agreements by the end of the third quarter.
The restructuring and forbearance agreement will “provide the company with additional financial flexibility to build on its strong operational momentum and pursue its strategic growth plan,” the company said in a press release. According to Sonida, action on the Fannie Mae agreement will result in approximately $40 million of additional cash flow over the next three years.
In a March filing with the Securities and Exchange Commission, Sonida had cited upcoming debt maturities as one of the reasons the company had “substantial doubt about our ability to continue as a going concern.” The firm also cited the inflationary environment, elevated interest rates and continued financial effects of the COVID-19 pandemic as reasons for the uncertainty.
In a fourth-quarter and full-year 2022 earnings call that same month, however, executives expressed optimism about the company’s future. The leadership team’s main goal for 2023, Sonida President and CEO Brandon Ribar said at the time, “is to accelerate the timeline for producing positive cash flow net of all recurring capital expenditures and debt service.”
Wednesday, Sonida also announced that it had obtained a $13.5 million equity commitment from Conversant Capital, its largest shareholder, and modified the covenants on its loan with Ally Bank. Sonida will have the right to use Conversant’s equity commitment but will not be obligated to use it.
Under the terms of the agreement, Sonida will make reduced debt service payments through the forbearance period. In consideration for the forbearance, the company gave $5 million to be applied to the existing loan balances.
Highlights of the subsequent loan modification, according to Sonida:
- $33 million in cash savings will be realized because all contractually required principal payments under the 37 Fannie Mae loans will be deferred for three years or waived until maturity.
- $6.1 billion in cash interest savings will be realized by Sonida over the next 12 months under a near-term interest rate reduction on all 37 properties.
- In consideration for the loan modification, Sonida will make a second $5 million payment on June 1, 2024, against the existing loan balances.
- The company expects the loan modification to be finalized by Sept. 30.
- All maturities will be extended to at least December 2026.
In connection with the completion of the Fannie Mae forbearance and the Conversant equity commitment, Ally Bank will temporarily reduce the minimum liquidity requirement under its $88.1 million credit facility for 18 months.
“We appreciate the collaborative approach from our lending partners to make these commercially compelling modifications to our debt structure,” Ribar said. “These developments provide the company with greater financial flexibility and runway to continue delivering operational improvement while providing the balance sheet capacity to pursue attractive growth opportunities, including both asset acquisitions and third-party management contracts.”
Sonida said it intends to draw $6 million in July in conjunction with the first $5 million principal payment to Fannie Mae. The remaining funds may be drawn as needed for general working capital needs or to fund the second $5 million loan paydown to Fannie Mae.
The company also said that it is in discussions with Protective Life Insurance Co. to try to resolve its noncompliance on $72.1 million in mortgage loans for four of the company’s senior living communities. In March, Sonida had reported that it had defaulted on the loans after electing not to make principal and interest payments in February and March. Outstanding debt related to those loans had been $70 million as of Dec. 31.
Sonida said it will provide additional updates in August during a second quarter earnings call, the date of which has not been announced publicly yet.
Read more details about Wednesday’s announcement here.
