Sabra, Care Capital merge; companies’ public bonds to survive merger

By Devika Patel

Knoxville, Tenn., May 8 – Sabra Health Care REIT, Inc. announced that it has agreed to combine with Care Capital Properties, Inc. in an all-stock merger.

Under the agreement, Care Capital shareholders will receive 1.123 Sabra shares for each Care Capital share.

Upon closing, Sabra shareholders are expected to own about 41% and the former Care Capital shareholders are expected to own about 59% of the combined company.

“This is a very simple transaction from financing perspective with a clear pathway to executing the financing requirements to get to closing,” chief financial officer Harold W. Andrews Jr. said on the company’s first quarter earnings conference call on Monday.

“The public bonds for both companies, which aggregate $1.2 billion, will survive the merger, eliminating any refinancing risk for these notes.

“In addition, the Sabra mortgage debt, totaling $161 million, and preferred equity of $138 million will also survive the merger,” Andrews said.

Andrews noted that the companies’ bank debt are led by the same bank, with overlapping participants, which will simplify the refinancing process.

“The bank debt facilities, which include revolvers of $500 million for Sabra and $600 million for CCP, and the term loans of both companies, aggregating approximately $800 million, are led by the same bank with approximately 75% of the CCP bank group currently participating in the Sabra bank facilities and approximately 50% of the Sabra bank group participating in the CCP bank debt facilities.

“This bodes well for our refinancing process for this piece of the capital stack and we will immediately launch that process.

“We expect to have this piece completed well in advance of closing the merger,” he said.

“The final piece to address are two unsecured borrowings totaling $300 million and a secured bridge to HUD loan of $135 million currently in the CCP capital structure.

“We are optimistic that we will be able to retain the relationships with these lenders upon closing the merger and we’ll begin to work on that process immediately as well.

“In summary, we are very confident we will secure all of the requisite permanent financing prior to closing in a very orderly and favorable fashion and are excited by the potential for even better access to capital in the future with the potential new lender relationships the merger will afford us.

“With respect to our debt maturities and cost of capital the benefits are significant.

“The combined company is expected to immediately have a well laddered maturity schedule with less than 20% coming due in the next five years,” he said.

Andrews said that the resulting company is also expected to garner investment-grade ratings from two of the three agencies.

“Based on our discussions over the past week with the agencies, we were pleased to learn that two of the three have indicated investment-grade ratings for the outstanding bonds of the combined company at the closing of the merger.

“This outcome with the two agencies is expected to have immediate positive implications for our cost of borrowings under the bank debt facility anticipated for the combined company.

“Furthermore, the significant jump in scale will enhance our access to capital in the future.

Andrews said the transaction will increase the company’s leverage, but this is expected to decrease.

“This transaction will put us at 5x [leverage] to start, over time we’d like to see it getting down below 5x.

On May 7, the company signed a commitment letter with lender UBS AG for a $550 million bridge facility which is available to repay Care Capital’s credit facility debt if necessary, according to an 8-K filing with the Securities and Exchange Commission.

UBS AG, Stamford Branch and UBS Securities LLC are the agents for the facility.

The transaction is expected to close during the third quarter of 2017,

Sabra is a health-care real estate investment trust based in Irvine, Calif.

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