|[December 12, 2012]
Fitch Rates Omega Healthcare Investors, Inc.'s Unsecured Term Loan 'BBB-'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has assigned a 'BBB-' rating to the $200 million unsecured
term loan due 2017 entered into by Omega Healthcare Investors, Inc.
(NYSE: OHI; Omega). The loan bears interest at a rate based on the
company's credit ratings and is currently priced at LIBOR + 175 basis
points. At closing, the company had $100 million in borrowings under the
term loan facility with up to 120 days to borrow the full amount
available. Proceeds will be used to repay amounts outstanding on the
line of credit facility and for future acquisitions. The term loan was
entered into in conjunction with a new credit facility. The term loan
and line of credit facility are subject to the same covenants as the
previous credit facility.
Fitch currently rates Omega as follows:
--Issuer Default Rating (IDR) 'BBB-';
--Unsecured revolving credit facility 'BBB-';
--Senior unsecured notes 'BBB-';
--Subordinated debt 'BB+'.
The ratings reflect the strength of the company's metrics (low leverage,
high fixed-charge coverage, stable cash flows and exceptional liquidity
due to no near-term maturities), which offset the largest credit concern
- the focus on skilled nursing and assisted living facilities. The high
percentage of government reimbursement and the corresponding regulatory
risk to operators of these facilities may place pressure on operator
earnings. Additionally, Fitch notes the company's small size ($2.8
billion in assets), moderate geographic concentration (Florida and Ohio
collectively comprise 32% of total investments) and exposure to smaller,
Fixed-charge coverage is strong for the 'BBB-' rating. For the trailing
12 months (TTM) ended Sept. 30, 2012, OHI's fixed-charge coverage ratio
was 3.1x, compared with 3.1x and 2.7x in full-year 2011 and 2010,
respectively. Contractual rental escalators drive Fitch's expectation of
fixed-charge coverage improving to 3.4x by 2014. Fitch defines
fixed-charge coverage as recurring operating EBITDA less straight-line
rents divided by total interest incurred and preferred dividends.
Leverage is also strong for the 'BBB-' rating and continues to decline.
Leverage was 5.1x as of Sept. 30, 2012, as compared with 5.7x and 5.1x,
respectively, as of Dec. 31, 2011 and 2010. Fitch forecasts that
leverage will migrate to the mid-4.0x range through 2014 as the company
acquires additional facilities funded evenly through debt and equity.
Fitch calculates leverage as net debt-to-recurring operating EBITDA.
OHI's liquidity is exceptionally strong with no debt maturities before
2017 other than amounts outstanding on the unsecured revolving line of
credit in 2016. The next maturity is the aforementioned $200 million
term loan in 2017. OHI's back-ended debt maturities, coupled with the
lack of recurring capital expenditures (due to the triple-net nature of
the leases) provide exceptional liquidity coverage.
Offsetting the credit positives is OHI's focus on skilled-nursing
facilities and assisted-living facilities, which are higly reliant upon
federal and state reimbursement. More than 92% of OHI's operator
revenues are derived from public sources as of June 30, 2012. Operators
have experienced greater financial volatility and stress when rates
and/or reimbursement formulas have changed. Healthcare legislation,
together with budgetary concerns at both the federal and state levels
will likely continue to pressure operator margins and operators'
capacity to honor lease obligations.
As expected, OHI's operators' coverage has weakened due to the Centers
for Medicare & Medicaid Services 2011 reimbursement rate adjustment but
remains solid (though not robust) at 2.0x and 1.6x, respectively, for
EBITDARM and EBITDAR as of June 30, 2012. These levels compare to 2.2x
and 1.8x, respectively as of Dec. 31, 2011. Master leases with
cross-collateralization and EBITDAR coverage covenants improve OHI's
security but OHI remains at risk for potential tenant defaults or
requests for rental relief concessions.
OHI's operators have been offsetting revenue declines through non-rent
operating expense cost savings. Coverage metrics have declined
moderately but Fitch expects they will stabilize modestly below current
Contingent liquidity as measured by unencumbered assets-to-unsecured
debt is adequate, ranging between 1.6x and 2.2x at capitalization rates
of 9.0% to 12.0%. This ratio will likely remain flat as the company
acquires properties on a leverage-neutral basis.
The one-notch differential between Omega's IDR and the subordinated debt
assumed as part of the CapitalSource transaction considers the relative
subordination within OHI's capital structure.
The Stable Outlook reflects Fitch's expectation that metrics will
improve but remain appropriate for the current rating and that any
reimbursement pressures at the operator level will have a minimal impact
on OHI cash flows given lease length, covenants and coverage.
The following factors could result in positive momentum in the ratings
--Fitch's expectation of net debt-to-recurring operating EBITDA
sustaining below 4.0x (leverage was 5.1x as of Sept. 30, 2012);
--Fitch's expectation of fixed-charge coverage sustaining above 3.5x
(coverage was 3.1x for the 12 months ended Sept. 30, 2012).
Conversely, the following factors may result in negative momentum in the
ratings and/or Outlook:
--Further pressure on operators through reimbursement cuts;
--Fitch's expectation of leverage sustaining above 5.5x;
--Fitch's expectation of fixed-charge coverage sustaining below 2.5x.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Recovery Rating and Notching Criteria for Equity REITs,' Nov. 12,
--'Corporate Rating Methodology,' Aug. 8, 2012;
--'Criteria for Rating U.S. Equity REITs and REOCs,' Feb. 27, 2012.
Applicable Criteria and Related Research:
Criteria for Rating U.S. Equity REITs and REOCs
Corporate Rating Methodology
Recovery Ratings and Notching Criteria for Equity REITs
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
[ InfoTech Spotlight's Homepage ]