Fitch Ratings downgrades to 'BB+' from 'BBB-' the rating
on the Indiana Health Facility Financing Authority's outstanding $16.4
million revenue bonds issued on behalf of Greenwood Village South
(GVS). The Rating Outlook is Stable.
The rating downgrade reflects GVS' weak balance sheet, additional debt plans, declining occupancy in the skilled nursing unit, and an increased Medicaid exposure. During fiscal 2005, GVS spent approximately $3.6 million of internal cash to upgrade the HVAC system. Although management expects to reimburse itself from future bond proceeds, balance sheet indicators would still remain below Fitch's 'BBB' medians. In fiscal 2005 (ended June 30), GVS' $3.4 million of unrestricted cash and investments equated to 93 days cash on hand and 22% cash-to-debt. For the six-month interim period ended Dec. 30, 2005, cash and investments totaled just $2.96 million, or 78 days cash on hand and cash-to-debt of 19%, compared to Fitch's 'BBB' medians of 278 days and 64%, respectively. GVS is expecting to issue approximately $15.9 million of series 2006 revenue and refunding bonds in the next three to six months.
Proceeds are expected to add 26 independent living apartments, refund $2.3 million of series 2000 bonds, reimburse the corporation for prior capital expenditures, and fund various capital improvements. While the new independent living units (ILUs) are projected to generate approximately $3.3 million of initial entrance fees the immediate effect of the series 2006 debt will leverage the balance sheet even further. Occupancy in GVS' 137 skilled nursing beds has experienced a steady decline since 2002. In fiscal 2005, occupancy of the skilled nursing beds was 82.3% as compared to 90.8%, 93.3%, and 94.0% in fiscal 2004, 2003, and 2002, respectively. In addition, the percentage of private pay residents fell to 50% in fiscal 2005 from 69% in fiscal 2002.
GVS' credit strengths remain the solid occupancy in the independent living units, the presence of a reputable management company, and GVS' low cost positioning in a stable market. Occupancy rates of the independent living apartments have averaged 96.4% annually since 2002. The facility maintains an active waiting list of approximately 60 potential residents, each of whom has deposited $1,000. Fitch believes this is a positive credit factor as it relates to the proposed ILU expansion. The presence of Life Care Service Corp. (LCS) as the facility's manager allows GVS access to a unique array of in-depth services that provide a significant value-added benefit to GVS and a distinct competitive advantage in the marketplace. Operating in a market with limited competition that exhibits sound socioeconomic characteristics, GVS' positioning as an affordable provider of senior housing lends support to future occupancy stability.
The Stable Rating Outlook is based on the expectation that balance sheet liquidity should improve with the reimbursement included in the proposed 2006 bond issue. Fitch believes that the entrance fees generated by the new ILUs will further enhance GVS' liquidity over the medium term. Moreover, management has implemented a new marketing effort directed at hospital discharge planners to improve occupancy and generate better reimbursement in the skilled nursing facility.
Located in Greenwood, IN, approximately 11 miles south of downtown Indianapolis, GVS is a not-for-profit Type-B continuing care retirement community (CCRC) consisting of 259 independent living units, 60 assisted living units, and 137 skilled nursing beds. In fiscal 2005, GVS had total revenues of $14.2 million. GVS has covenanted to provide to the trustee and directly to bondholders unaudited quarterly financial statements within 45 days of each quarter-end and audited financial statements with 120 days of each fiscal year-end. However, financial disclosure on the NRMSIRs has not been timely, which is viewed negatively by Fitch.
Outstanding Debt:
-- $2,305,000 Indiana Health Facility Financing Authority revenue bonds, series 2000 (Greenwood Village South Project);
-- $14,098,746 Indiana Health Facility Financing Authority revenue bonds, series 1998 (Greenwood Village South Project).
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, '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.
The rating downgrade reflects GVS' weak balance sheet, additional debt plans, declining occupancy in the skilled nursing unit, and an increased Medicaid exposure. During fiscal 2005, GVS spent approximately $3.6 million of internal cash to upgrade the HVAC system. Although management expects to reimburse itself from future bond proceeds, balance sheet indicators would still remain below Fitch's 'BBB' medians. In fiscal 2005 (ended June 30), GVS' $3.4 million of unrestricted cash and investments equated to 93 days cash on hand and 22% cash-to-debt. For the six-month interim period ended Dec. 30, 2005, cash and investments totaled just $2.96 million, or 78 days cash on hand and cash-to-debt of 19%, compared to Fitch's 'BBB' medians of 278 days and 64%, respectively. GVS is expecting to issue approximately $15.9 million of series 2006 revenue and refunding bonds in the next three to six months.
Proceeds are expected to add 26 independent living apartments, refund $2.3 million of series 2000 bonds, reimburse the corporation for prior capital expenditures, and fund various capital improvements. While the new independent living units (ILUs) are projected to generate approximately $3.3 million of initial entrance fees the immediate effect of the series 2006 debt will leverage the balance sheet even further. Occupancy in GVS' 137 skilled nursing beds has experienced a steady decline since 2002. In fiscal 2005, occupancy of the skilled nursing beds was 82.3% as compared to 90.8%, 93.3%, and 94.0% in fiscal 2004, 2003, and 2002, respectively. In addition, the percentage of private pay residents fell to 50% in fiscal 2005 from 69% in fiscal 2002.
GVS' credit strengths remain the solid occupancy in the independent living units, the presence of a reputable management company, and GVS' low cost positioning in a stable market. Occupancy rates of the independent living apartments have averaged 96.4% annually since 2002. The facility maintains an active waiting list of approximately 60 potential residents, each of whom has deposited $1,000. Fitch believes this is a positive credit factor as it relates to the proposed ILU expansion. The presence of Life Care Service Corp. (LCS) as the facility's manager allows GVS access to a unique array of in-depth services that provide a significant value-added benefit to GVS and a distinct competitive advantage in the marketplace. Operating in a market with limited competition that exhibits sound socioeconomic characteristics, GVS' positioning as an affordable provider of senior housing lends support to future occupancy stability.
The Stable Rating Outlook is based on the expectation that balance sheet liquidity should improve with the reimbursement included in the proposed 2006 bond issue. Fitch believes that the entrance fees generated by the new ILUs will further enhance GVS' liquidity over the medium term. Moreover, management has implemented a new marketing effort directed at hospital discharge planners to improve occupancy and generate better reimbursement in the skilled nursing facility.
Located in Greenwood, IN, approximately 11 miles south of downtown Indianapolis, GVS is a not-for-profit Type-B continuing care retirement community (CCRC) consisting of 259 independent living units, 60 assisted living units, and 137 skilled nursing beds. In fiscal 2005, GVS had total revenues of $14.2 million. GVS has covenanted to provide to the trustee and directly to bondholders unaudited quarterly financial statements within 45 days of each quarter-end and audited financial statements with 120 days of each fiscal year-end. However, financial disclosure on the NRMSIRs has not been timely, which is viewed negatively by Fitch.
Outstanding Debt:
-- $2,305,000 Indiana Health Facility Financing Authority revenue bonds, series 2000 (Greenwood Village South Project);
-- $14,098,746 Indiana Health Facility Financing Authority revenue bonds, series 1998 (Greenwood Village South Project).
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, '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.