NEW YORK--()--Fitch Ratings has upgraded to 'A-' from 'BBB+' the rating on the following New Hampshire Higher Educational and Health Facilities Authority bonds issues on behalf of New Hampshire Catholic Charities (NHCC):
--Approximately $4.2 million outstanding revenue bonds, series 1997.
The Rating Outlook is Stable.
--Pledge of gross receipts and mortgage;
--Debt service reserve fund.
RATING SENSITIVITY/KEY RATING DRIVERS
UPGRADE REFLECTS FINANCIAL PROFILE: NHCC light debt burden and consistent operating performance support the 'A-' upgrade.
SOLID OPERATING PERFORMANCE: NHCC continues to exhibit solid bottom line results, ending fiscal 2012 (March 31 year-end) with a 6% excess margin ($4.0 million in operating income). Six month fiscal 2013 results are consistent with historical results.
EXCELLENT LIQUIDITY: NHCC had days cash on hand of 200, a cushion ratio of 47.6x, and cash to debt of 638% at September 30, 2012.
EXPERIENCED MANAGEMENT TEAM: NHCC's management team has proven its ability to maintain consistent levels of operating performance in spite of the challenges in various nursing home reimbursement streams, including Medicaid, which remains a credit concern. However, through a variety of initiatives, NHCC has lowered its Medicaid as a percentage of gross revenues, with the figure falling to just below 60% as of Oct. 31, 2012, the lowest it has been since Fitch has rated NHCC.
STRONG OCCUPANCY: NHCC's occupancy across its six nursing homes remains high, above 90% for the system. Good Shepherd, which had been challenging, has stabilized its occupancy under its current administrator, with occupancy at Good Shepherd, as of Sept. 30, 2012 at 88.8% up from 78.2% for the same period in 2011.
VERY LIGHT DEBT BURDEN: NHCC's maximum annual debt service is $551,000, which NHCC covered at 10.3x in the six month fiscal 2013 interim period.
LONGER TERM IL EXPANSION A CONCERN: An independent living expansion being contemplated at the St. Francis campus is a longer term credit concern. NHCC is first undertaking a smaller skilled nursing renovation at St. Francis, with an expected cost under $2 million. The larger IL expansion is not anticipated to occur within the next four years. Separately, NHCC has invested in its facilities from cash flow to maintain each of its campuses' competitiveness.
The upgrade to the A-' rating and Stable Outlook are supported by NHCC's solid occupancy, consistent bottom line results, a solid balance sheet, and very light debt burden. Occupancy across NHCC's six nursing homes was above 90% through the six-month interim period, which is consistent with occupancy over the last five audited years.
Solid occupancy has helped support positive bottom line results, with NHCC's excess margin averaging 5.8% over the last three audited years. The operating results (including contributions) also reflect NHCC's expense control efforts, including the reduction of agency use, as well as a fairly stable and manageable level of Medicaid exposure, approximately 58% as of Oct. 31, 2012. Medicaid levels that exceed 70% are a credit concern as Medicaid is the lowest payor of all reimbursement sources. Fundraising, an integral part of NHCC's revenue stream, has remained steady as well, supporting the stable operating performance. Six month interim results show continued positive results with an excess margin of 6.9%.
NHCC's balance sheet continues to be a credit strength with DCOH of 200, a cushion ratio of 47.6x, and cash to debt of 638% at Sept. 30, 2012. In fiscal 2012, NHCC redeemed its series 1997A bonds which dramatically lowered its debt burden. MADS as a percent of revenue is currently under 1%. Debt service coverage which had been historically at around 4x has grown to approximately 10x as MADS fell to $551,000. NHCC's debt is fixed and the bonds will mature in 2022.
NHCC's lack of revenue diversity (approximately 75% of NHCC's patient revenue comes from government sources) and the potential for future capital projects over the medium term remain credit concerns. NHCC's high exposure to government payors adds operating risk to NHCC, which NHCC has managed well even as New Hampshire (GOs rated 'AA+' by Fitch) like many other states is facing deficits.
In recognition of its need to diversify revenue, NHCC has been contemplating building independent living units (IL). NHCC currently has 81 rental IL units in three locations but these produce modest levels of revenue (approximately $1.2 million a year) and are immaterial to NHCC's overall financial results. The IL expansion would most likely occur on NHCC's St. Francis campus, which is a well situated property located next to a lake in the city of Laconia.
NHCC has begun the preliminary architectural work for a first phase that would renovate the current skilled nursing beds at St. Francis, and as part of this NHCC also intends to undertake exploratory work for a possible IL expansion. Fitch expected this process to have been completed already but this has been delayed. However, if the IL plans were to be executed upon, it could include debt, but Fitch expects nothing to happen over the next four years. Additionally, given NHCC's very light debt burden there is some debt capacity even at the higher rating. NHCC is also in the latter stages of acquiring another skilled nursing facility which has a campus that would allow for potential diversification into IL or ALF services, but the timing for that would be even further out than the St. Francis expansion.
New Hampshire Catholic Charities, Inc. is a not-for-profit agency that operates 439 skilled nursing beds in six separate facilities, 81 independent living units in three rental facilities, a children's home, and a home for retired priests, all of which are located throughout New Hampshire. Total revenue in fiscal 2012 was $64.7 million. NHCC covenants to disclose only annual information to EMMA and disclosure to date has been timely. NHCC does not covenant to disclose quarterly information.
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.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 12, 2012);
--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities' (July 23, 2012);
--'Nonprofit Nursing Home Rating Criteria'(July 5, 2012).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
Rating Guidelines for Nonprofit Continuing Care Retirement Communities
Nonprofit Nursing Home Rating Criteria