As part of its ongoing surveillance efforts, Fitch Ratings has affirmed the 'BBB-' rating on approximately $20.9 million of Illinois Finance Authority's revenue bonds, series 2006, issued on behalf of Tabor Hills.
The Rating Outlook is revised to Positive from Stable
SECURITY
The bonds are secured by a pledge of the gross revenues of the obligated group, a mortgage on the facility and a debt service reserve fund.
KEY RATING DRIVERS
--Improving Financial Profile: The Outlook revision to Positive from Stable reflects Fitch's expectation that Tabor Hills' steadily growing balance sheet, coupled with its consistently strong profitability, will, over the near term, lead to an overall credit profile that is in line with a 'BBB' rating.
--Consistently Strong Profitability: Operating profitability over the last few fiscal years has met or exceeded Fitch's 'BBB' medians. Further, Tabor Hills continues to generate strong metrics despite a challenging operating environment.
--Improving Liquidity: Tabor Hills continues to build its balance sheet and, with the exception of days cash on hand, liquidity indicators meet or exceed Fitch's 'BBB' category medians.
--Good Debt Service Coverage: Coverage of maximum annual debt service (MADS) from turnover entrance fees is solid at 2.7 times (x) in 2010 and through the 10 months ended July 31, 2011.
--Solid Occupancy: Occupancy at Tabor Hills is a credit strength with average occupancy of independent living units (ILUs) at 90% and assisted living units (ALUs) at 92% despite the competitive service area. Skilled nursing facility (SNF) bed occupancy at 77% is down from normal levels, mostly due to management's efforts to control the amount of disbursement from government payors, the economy, and conversion of several triple rooms to double rooms.
--High Proportion of Skilled Nursing Beds: The large proportion of revenues generated from skilled nursing services is a credit concern as it subjects the facility to greater operating risk due to high attrition and reimbursement pressures from governmental payors.
WHAT COULD TRIGGER A RATING ACTION
Sustainment of recent profitability and coverage with further improvement of liquidity indicators.
CREDIT PROFILE
The rating affirmation at 'BBB' is supported by Tabor Hill's strong profitability, good demand and solid debt service coverage. The Positive Outlook reflects Fitch's expectation that Tabor Hills will continue to build its liquidity position over the next two years, lifting the community's overall credit profile to be more in line with 'BBB' metrics.
Tabor Hills' historical operating profitability has been strong and consistent. In 2010, the community's operating ratio was 88.3%, indicative of better operational profitability compared to 'BBB' category median of 98.6%. Net operating margin of 16.6% also exceeds the 'BBB' category median of 6.8%.
Despite competition in the service area, Tabor Hills' benefits from its attractive pricing levels for entrance and monthly fees, which are lower than those of the two competing continuing care retirement communities (CCRCs) in the service area, resulting in solid occupancy with ILU and ALU occupancy consistently above 90%. SNF occupancy is down to 77% at July 31, 2011 (10-month interim), below the three year (2008-2010) historical average of 91.8%, which can be attributed to management's effort to control payor mix, the downturn in the economy and the conversion of several triple rooms to double rooms (with the licensed beds remaining at 211 units). Historically, management has demonstrated its ability to effectively balance occupancy and payor mix and Fitch expects SNF occupancy to return to historical levels over the near- to mid-term.
Tabor Hills debt burden is manageable with all fixed rate debt and no swaps. Debt service coverage has been strong at 2.7x in fiscal 2010 (year ending Sept. 30) and through the 10 months ended July 31 and exceeds the 'BBB' category median of 1.5x. Furthermore, MADS is a light 7.4% of revenues through the 10-month interim and compares favorably to the 'BBB' category median of 12.8%.
Tabor Hills' liquidity position has shown steady improvement over the last three years. Cash to debt and cushion ratios of 60.6% and 8.5x at July 31, 2011 exceed the respective 'BBB' category medians of 48.6% and 6.1x. Days cash on hand at July 31, 2011 of 268.5 is below the 'BBB' category median of 372.7 days, mostly a function of its type-C contract, but an improvement from 203.3 days at fiscal 2010 year end.
A credit concern is Tabor Hills' high proportion of SNFs relative to ILUs with approximately two nursing beds for every ILU. This subjects Tabor Hills to more inherent risk to reimbursement changes and higher turnover, than a typical CCRC.
Tabor Hills is located in Naperville, IL, a suburb of Chicago, approximately 28 miles west of the city and has 104 patio town homes, 211 skilled nursing beds, and 95 supportive living units. Total operating revenue in fiscal 2009 was $19.6 million. Tabor Hills covenants to provide audited financial information to the Master Trustee, the Illinois Finance Authority and the Bond Trustee within 120 days of fiscal year end, and quarterly financial information including a balance sheet, income statement and cash flow statement within 45 days of each quarter end. Tabor Hills also posts audited, monthly and operating information on EMMA.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the sector Rating Criteria, this action was informed by information from?
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria (June 20, 2011)
--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities' (July 26, 2011)
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
Rating Guidelines for Nonprofit Continuing Care Retirement Communities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=40171
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