Fitch Ratings has assigned an 'A-' rating to the approximately $20 million Orange County Health Facilities Authority (the Authority) health care facilities revenue refunding bonds, series 2012 issued on behalf of Mayflower Retirement Center, Inc. (Mayflower).
The series 2012 bonds will be issued as fixed rate. Proceeds will be used to refund the Authority's series 1999 bonds issued on behalf of Mayflower, fund a debt service reserve fund and pay a portion of the costs of issuance. The Mayflower will put in place a master trust indenture as part of this financing. Pro forma maximum annual debt service (MADS) declines to about $1.4 million from $1.7 million and will be mostly level. MADS was provided by the underwriter. In conjunction with the transaction, Mayflower will terminate a fixed receiver swap and anticipates receiving approximately $700,000 upon termination. The bonds are expected to sell the week of April 18.
The Rating Outlook is Stable.
SECURITY
Debt payments are secured by a pledge of the gross revenues of the obligated group and a mortgage on all property, excluding only the property that was purchased and is being held for potential growth. In addition, a fully funded debt service reserve fund provides additional security for bondholders.
KEY RATING DRIVERS
CONSISTENTLY STRONG OCCUPANCY: Due to its location in a desired service area combined with limited competition for a type-A facility, the Mayflower has been able to maintain solid occupancy, over 90% across the continuum of care, despite a challenging operating environment in the sector.
GOOD DEBT SERVICE COVERAGE: Mayflower's debt burden is low with pro forma MADS comprising 7.2% of total fiscal 2011 (unaudited) revenue compared with the 'A' category median of 8.3%. MADS coverage is strong at 3.7 times (x) for fiscal 2011, which compares favorably to the 'A' category median of 3.1x. Revenue only coverage is lower at 0.5%.
SOLID LIQUIDITY POSITION: Mayflower's 112.5% cash to debt and cushion ratio of 14.7x at Dec. 31, 2011 (unaudited fiscal 2011 results) are in line with the 'A' category medians of 117.3% and 15.2x, respectively.
CONSISTENT OPERATIONS: Mayflower has demonstrated consistent financial results, with adjusted net operating margin above 21% over the last three years.
SMALL REVENUE BASE: The Mayflower's relatively small revenue base can subject the organization to a greater level of volatility as small changes in occupancy or turnover may impact financial results.
CREDIT PROFILE
The 'A-' rating reflects Mayflower's consistently solid occupancy, good debt service coverage, strong liquidity metrics and consistent operating performance. The primary concern is Mayflower's relatively small size and reliance on entrance fee revenue for debt service.
Historical occupancy across each level of care has been strong over the past three years, exceeding 90%. Occupancy in 2011 of the independent living units (ILUs), assisted living units (ALUs) and skilled nursing facility units (SNFs) was 96.6%, 96.8% and 93.3%, respectively, which is excellent considering the challenging operating climate in the sector. Fitch views Mayflower's historical occupancy as a credit strength and believes it provides a strong indication of the organization's reputation in the market as well as the above-average characteristics of the local service area. Residents primarily come from five zip codes surrounding Winter Park.
Pro forma MADS equates to a low 7.2% of fiscal 2011 revenues, which is below the 'A' category median of 8.3%. Historical coverage of pro forma MADS of 3.7x in fiscal 2011 compares favorably to the 'A' category median of 3.1x. Historical coverage of revenue-only pro forma MADS was low at 0.5x in fiscal 2011. The lower revenue-only coverage is consistent with a type-A, fully amortizing contract, and does reflect a heavy reliance on entrances fees to pay debt service. The reliance on entrance fees and the lower revenue-only coverage are concerns. But mitigating these concerns is the Mayflower's strong history of net entrances fee receipts, which have not been below $3 million since 2002 and have been above $4 million the last four fiscal years, as well as a robust waiting list.
Management regularly updates the waiting list and reports that it continues to remain at historical levels; interest remains strong enough that the Mayflower does not currently hold general marketing events. Instead, the Mayflower works closely with members on its list, holding events for them and allowing them access to campus events. The Mayflower also has a higher-tier waitlist that for a larger down payment gives those on the list access to a board certified geriatrician at the community.
At Dec. 31, 2011 (unaudited results) Mayflower's unrestricted cash and investments totaled $21.1 million, which equates to a 14.7x cushion ratio and 112.5% cash to debt, which are in line with the respective 'A' category medians of 15.2x and 117.3%. Days cash on hand of 464.3 in fiscal 2011 is somewhat below the median of 557.2 days, reflecting the type-A contract, but is adequate for the rating level. Capital spending has been solid over the past four years, averaging about 118.3% annually from 2008-2011 compared to the 'A' category median of 68.9%. Although the average age of plant was 11.3 years in fiscal 2011, above the 'A' category median of 10 years, management engages in long-term routine capital spending and the plant is in excellent condition.
Mayflower's historical operating performance has been consistent and is adequate for the rating category. Management closely monitors staffing and adjusts as necessary depending on the census. Net operating margin was a low 1x in fiscal 2011, below the 'A' category of 6.7x. However, adjusted net operating margin, which includes turnover entrance fees, has averaged a strong 22.2x over the last three years (2009-2011), comparing favorably to the 'A' category median of 19.8x. Revenue grew 5% in fiscal 2011 from the prior year, which Fitch views favorably. Additionally, Mayflower is in the process of certification for a Home Health program, which is ramping up and not included in fiscal 2011 revenues, but expected to generate additional revenue in fiscal 2012.
The Stable Outlook reflects Fitch's expectation that Mayflower will continue to generate solid debt service coverage and consistent profitability and occupancy will remain stable.
Located on approximately 30 acres in Winter Park, Florida, Mayflower is a full-service type-A continuing care retirement community with 252 ILUs (28 villas and 224 apartments), 31 ALUs (13 semi-private and 5 private) and 60 SNF beds (26 semi-private and 8 private). The facility was originally constructed in 1989 with the sponsorship of the First Congregational Church of Winter Park and expansions and renovations occurred in 1993 and 1996. Mayflower will covenant to provide annual continuing disclosure to EMMA no later than 140 days after the end of fiscal year and quarterly disclosure no later than 45 days after each quarter's end.
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.
In addition to the sources of information identified in the Revenue Supported Rating Criteria, this action was informed by information from the underwriter.
Applicable Criteria and Related Research:
--'Revenue Supported Rating Criteria' (June 20, 2011);
--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities' (July 26, 2011).
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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