Fitch Ratings has assigned a 'BB+' rating to the following Travis County Health Facilities Development Corporation revenue bonds:
--$66.2 million series 2010(Westminster Manor).
The series 2010 bonds are expected to be issued as fixed-rate debt. Proceeds will be used to fund a campus expansion and repositioning that will add 75 new independent living units (ILUs), replace the current 90 bed skilled nursing facility (SNF) with 55 new SNF units, 22 assisted living units and 30 memory care beds, fund a debt service reserve account, fund 31 months of capitalized interest and associated costs of issuance. The bonds are expected to sell the week of Feb. 8, 2010 through negotiated sale.
The Rating Outlook is Stable.
RATING RATIONALE:
--Westminster Manor's (WM) location and reputation in the Austin market have resulted in strong demand for services as evidenced by annual occupancy of the ILUs above 96% in each year since 2000. Furthermore, WM has maintained an active wait-list of 125-150 applicants which has been used to generate sales on the new ILUs as well as the existing units.
--As of Dec. 31, 2009, WM had received 10% entrance fee deposits on 95% (71 of 75) of the proposed units. Furthermore, collection of pre-sales deposits has been achieved over an 11-month period reflecting a pre-sale velocity of seven sales per month which exceeds industry averages and is reflective of the strong market interest in the project.
--Upon closing of the series 2010 issue, several of WM's financial liquidity and capital related ratios will be significantly weaker than Fitch's investment grade medians until the project reaches stabilization. Management's financial forecast projects certain liquidity, profitability and debt-related ratios that are in-line with Fitch's 2009 'BBB' medians upon stabilization in 2014.
--Strong board and management oversight which has minimized the inherent development risks associated with the project.
WHAT COULD TRIGGER A DOWNGRADE:
--A delay in construction completion and/or a material increase in project costs.
--A decline in pre-sales due to cancellations at or prior to occupancy resulting in a delay of the anticipated receipt of initial entrance fees used to pay down temporary debt.
SECURITY:
Pledge of gross revenues and a mortgage lien on property.
CREDIT SUMMARY:
The 'BB+' rating embodies WM's strong historical operations and demand for services, a high pre-sale level of the new ILUs, the substantial increase in debt and the weakening of several financial ratios during development and strong management and board oversight. WM's location and reputation in the Austin market have resulted in strong demand for services. Since 2000, average annual occupancy of ILUs has ranged between 96%-98% while occupancy in the SNF has been above 90% in each of the last four years. The community has maintained an active wait list of 125-150 potential residents each of whom has paid a $1,000 to $5,000 deposit to indicate their intention to move in should an existing unit become available. Furthermore, occupancy and demand for services at WM has remained strong through the opening of Querencia at Barton Creek (167 ILUs, 63 ALUs and 42 SNFs) in 2007 and Longhorn Village at Steiner Ranch (214 ILUs, 36 ALUs and 60 SNF) in August 2009. The expansion/repositioning project at WM includes the addition of 75 ILUs. As of Dec. 31, 2009, WM had received 10% entrance fee deposits on 95% (71 of 75) of the proposed units. Furthermore, collection of pre-sales deposits has been achieved over an 11-month period reflecting a pre-sale velocity of seven sales per month which exceeds industry averages and is reflective of the strong market interest in the project.
Currently many of WM's financial ratios exceed Fitch's 'BBB' medians. However, upon closing of the series 2010 bond issue, WM's debt load will increase from $6.1 million on Nov. 1, 2009 to roughly $96 million. Thus, many of WM's financial liquidity and capital related ratios will become significantly weaker than Fitch's investment grade medians until the project achieves stabilization. Management's financial forecast projects the first full year of stabilization in 2014 with days cash on hand of 432, cash to debt of 50%, coverage of maximum annual debt service (MADS) of 1.8 times (x) and adjusted debt to capitalization of 47.5% which are in line with the respective 2009 'BBB' medians of 336, 48%, 1.7x and 60.8%. Finally, a lower rating is precluded due to the strong project oversight from the board and management which Fitch believes has minimized the development and fill up risk attendant with any large expansion/repositioning project. Board members have background/expertise in banking, accounting, engineering and real estate development. Day to day management of the facility is contracted with Life Care Services, one of the largest managers of CCRC facilities in the US. A guaranteed maximum price (GMP) has been executed which includes provisions for liquidated damages. In addition, a 10% project contingency has been funded as well as 31 months of capitalized interest.
The Stable Outlook reflects Fitch's expectation that the board and management will successfully execute and meet its financial forecast. A delay in construction completion, material cost overruns or a delay in fill up of the new units could result in negative rating action.
Westminster Manor is a type-A CCRC located in Austin TX consisting of 256 ILUs and 90 SNF units. In 2008, WM had total revenues of $16.5 million. WM will provide annual audited financial disclosure with 150 days of each fiscal year end and quarterly unaudited financial disclosure within 45 days of each quarter-end to the Municipal Securities Rule-making Board's EMMA system.
Applicable criteria available on Fitch's web site at 'www.fitchratings.com' includes:
'Revenue-Supported Rating Criteria', dated Dec 29, 2009.
'Rating Guidelines for Nonprofit Continuing Care Retirement Communities', dated Dec 15, 2009.
Additional information is available at 'www.fitchratings.com'.
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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON 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 THIS SITE.
Contacts:
Fitch Ratings
Jim LeBuhn, 312-368-2059, Chicago
Jonathan
Mandel, 212-908-1230, New York
or
Media Relations:
Cindy
Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com