Investing in the High Yield Municipal Market: How to Profit from the Current Municipal Credit Crisis and Earn Attractive Tax-Exempt Interest Income

Continuing Care Retirement Communities (CCRC) Bonds

The retirement facilities sector holds a special place within the high yield tax-exempt market. Historically, the sector has been one of the riskiest investments for municipal buyers: As seen in Chapter 4, retirement facilities consistently show up among the top four sectors in terms of default rate over the last 3, 5, and 10 years. Yet, the sector has grown to become a significant component of many institutional high yield investors’ portfolios, and of quite a few individual investors’ as well, thanks to the aggressive sales efforts of several regional broker-dealers specializing in this type of financing. A key part of the sector’s appeal has been the undeniable demographic fundamentals: Who can really argue against the obvious and growing senior living needs of an aging America? Combine that with consistently attractive tax-exempt yields (around 300 to 500 basis points above the AAA muni scale, although the frothy 2006 to 2007 period did see spreads inside of 200 basis points), and one can see why investors have been willing to stick with this sector through thick and thin. This section deals with one specific subsector of the senior living space, one that typically offers the most attractive tax-exempt yields, the not-for-profit continuing care retirement communities, or CCRCs.

CCRCs are generally nonprofit organizations that provide various levels of housing and health care services to affluent seniors age 75 or older on ...