[September 28, 2016]

Fitch Affirms Saint Anne's Retirement Community at 'BB+'; Outlook Revised to Stable

Fitch Ratings has affirmed the 'BB+' rating on the following Lancaster County Hospital Authority revenue bonds, issued on behalf of Saint Anne Retirement Community, PA (SARC):

--$18.4 million series 2012.

The Rating Outlook has been revised to Stable from Negative.

SECURITY

The bonds are secured by a gross revenue pledge, mortgage lien, and debt service reserve fund.

KEY RATING DRIVERS

STRENGTHENED PROFITABILITY: The Outlook revision to Stable is supported by stronger operating performance in fiscal 2016. Following several years of declining or flat revenue, SARC's service revenue grew 9% in fiscal 2016. Growth is due in large part to a successful memory support expansion, coupled with improved census across units. As a result, SARC produced a solid 10.6% net operating margin (NOM), and 2.0x coverage of maximum annual debt service (MADS) coverage by revenue only. Additionally, reliance on entrance fees and investment income is minimal.

IMPROVED OCCUPANCY: Following mixed occupancy in 2015, census improved in 2016, averaging above 92% across all units at fiscal year-end. The opening and fill-up of its new memory support unit in fiscal 2016 was successful; the unit was 94.5% occupied at fiscal year-end.

MODERATE LIQUIDITY: At fiscal year ended June 30, 2015, SARC had $8.8 million in unrestricted cash and investments, equating to 209 days cash on hand (DCOH), 48.1% cash to debt and a 5.4x cushion ratio in line with Fitch's respective 'BIG' medians of 227 DCOH, 37.3% and 5x. This level of liquidity is solid for a Type C fee-for-service facility at a 'BB+' rating level.

ILU EXPANSION PLANS: SARC is moving forward on its planned ILU expansion, which is expected to progress in phases, with initial financing now anticipated within the next nine months. The project's final scope and financing remains in flux, but is expected to be funded in part with debt and with entrance fee proceeds.

RATING SENSITIVITIES

SUSTAINED CASH FLOW: SARC is expected to maintain solid operating profitability in line with the 'BB+' rating going forward. However, rating pressure is possible should SARC not maintain healthy cash flow in light of planned its capital outlays and likely increase in debt.

EXPECTED DEBT ISSUANCE: Near-term capital plans will likely include additional debt, which could pressure SARC's financial profile and rating. Though delayed, SARC has continued moving forward on its ILU expansion plan, and Fitch anticipates final determination of size, phasing, and financing to now occur in early-to-mid 2017.

CREDIT PROFILE

Saint Anne's Retirement Community (SARC, a type C continuing care retirement community (CCRC), is located outside Columbia, PA in the township of West Hempfield, approximately 35 miles southwest of Harrisburg and 10 miles west of Lancaster. SARC is sponsored by the Religious Congregation of Sisters of the Adorers of the Blood of Christ, United States Region (ASC (News - Alert)), and operates a 61-unit skilled nursing facility (SNF), a 51-bed memory support unit (MSU), 51-personal care assisted living units (ALUs), and 71-rental and entrance fee independent living units (ILUs). Total reported revenues in fiscal 2016 (year-end June 30) were $16.7 million.

OPERATING IMPROVEMENTS

SARC exceeded its budgeted expectations in fiscal 2016, generating 2.2x MADS coverage and a healthy 10.6% NOM. Both compare favorably to Fitch's 'BIG' medians of 1.5x coverage and 6.6% NOM. Healthy occupancy coupled with a conservative staffing and expense approach were key factors. Further, SARC's fiscal 2017 budget remains conservative with regard to expenses, as occupancy targets are conservative compared to fiscal 2016 actual levels. SARC finished fiscal 2016 with 94.9% ILU, 93.5% ALU, 94.5% MSU, and 89.2% SNF occupancy.

ILU PLANS

As expected, SARC is moving forward with its campus expansion plans, which may add up to 106 ILUs (both apartments and cottages) when fully complete, likely to be accomplished in several phases over the next several years. Overall, the project is expected to be accretive; expanding SARC's revenue base and addressing its somewhat high 17.7 year average age of plant. It is likely that SARC will pursue additional debt financing within the next nine to 12 months as a source of funding for this project. While SARC has some capacity at the current rating for additional debt, rating pressure is possible depending on the final scope and cost of the project and analysis of SARC's pro forma credit profile.

DEBT PROFILE

At fiscal 2016 SARC had $18.4 million in total long term debt, all of which is fixed rate. Debt service is level, with MADS measured at $1.6 million. SARC has no derivative instruments, and no defined benefit pension obligation.

SARC's current debt burden is currently manageable, evidenced by MADS equal to 9.2% of total revenue and 5.1x debt to net available. Of note, SARC's revenue-only coverage was a healthy 2x in fiscal 2016 and consistently well above Fitch's below-investment-grade (BIG) median of 0.8x.

SARC generated 1.9x debt service coverage per its fiscal 2016 covenant calculation, ahead of its 1.2x requirement.

DISCLOSURE

SARC provides ongoing disclosure within 120 days of fiscal year and ithin 60 days of each fiscal quarter end via the Municipal Bondholders Rulemaking Board's EMMA system. Disclosure includes balance sheet, income statement, occupancy, budget, and covenant compliance.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/site/re/750012

U.S. Nonprofit Hospitals and Health Systems Rating Criteria (pub. 09 Jun 2015)

https://www.fitchratings.com/site/re/866807

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1012315

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1012315

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEB SITE AT 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 THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Copyright (c) 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160928006346/en/

[ Back To TMCnet.com's Homepage ]