CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BB+' rating on the following Lancaster County Hospital Authority bonds, issued on behalf of Saint Anne Retirement Community (SARC):
--$20.4 million series 2012;
The Rating Outlook is Stable.
The bonds are supported by a gross revenue pledge, mortgage lien, and debt service reserve fund.
KEY RATING DRIVERS
MANAGEABLE DEBT BURDEN: SARC's pro forma debt burden is moderate, evidenced by pro forma MADS equal to 10.3% of total revenue and 8.8x debt to net available. Of note, SARC's revenue-only coverage has averaged 1.3x since fiscal 2009.
SUFFICIENT OPERATING PROFITABILITY: SARC's profitability metrics are strong for the 'BB' rating category and sufficient against its debt level. Its operating ratio of 95.4% in fiscal 2013 (Jun. 30 year end) has been very consistent since fiscal 2009. Further, its 5.8% net operating margin was sufficient to produce good revenue-only MADS coverage despite declining from 9.5% in fiscal 2012.
LIGHT LIQUIDITY: At fiscal year ended June 30, 2013, SARC's had $8.1 million in unrestricted cash and investments, equating to a somewhat light 195.6 days cash on hand (DCOH), 38.6% cash to debt and 4.8x cushion ratio. Since SARC is a Type C fee-for-service facility, Fitch believes that this level of liquidity is sufficient for the rating.
SIZEABLE NURSING COMPONENT: Fitch notes that approximately 70% of SARC's total revenues are driven by its 119-bed Skilled Nursing Facility (SNF). While management has been successful in improving operating performance, potential cuts to Medicare and Medicaid (together, 55.4% of 2013 SNF revenues) presents some risk to SARC's revenue base.
SNF OCCUPANCY PRESSURED: During 2013 the average occupancy in the SNF slipped to 80.8% from 92.9% prior year, due in large part to a higher-than-average number of deaths, and lower inpatient census at the area hospitals. Still, ILU and ALU occupancy both remained steady near 91% in 2013 despite higher turnover than prior year, demonstrating SARC's stable position in its service area.
LIQUIDITY A LIMITING FACTOR: Due to its reliance on SNF revenues which are predominately from government payors, Fitch believes SARC is Stable at its current rating level. Any upward rating movement is precluded by SARC's light liquidity levels and the risks associated with its relatively small revenue base.
Saint Anne's Retirement Community (SARC) is located outside Columbia, PA in the township of West Hempfield, approximately 35 miles southeast of Harrisburg and 10 miles west of Lancaster. SARC is sponsored by the Religious Congregation of Sisters of the Adorers of the Blood of Christ, United States Province (ASC), and operates a 119-bed SNF, 53 ALUs, and 71 rental and entrance fee ILUs. In fiscal 2012 (year ended June 30), SARC reported approximately $15.4 million of total revenues.
MODEST DEBT LEVEL
The 'BB+' rating incorporates SARC's manageable debt level of $20.4 million, which allows for sufficient coverage and moderate leverage against a small revenue base and somewhat light cash flow. As a type C CCRC with some rental contracts, SARC produces modest entrance fee levels which translated into a 7.8% net operating margin-adjusted in fiscal 2013. SARC produced coverage which is solid for the rating level, at 1.4x including turnover entrance fees and 1.2x by revenue only.
SOME OCCUPANCY PRESSURE
SARC does not have plans of additional debt, and its modest capital budget near $750K for fiscal 2014 will flex as operating performance allows. SARC was impacted in 2013 by lower than expected SNF occupancy. This concern is heightened due to SARC's reliance on the SNF for nearly 70% of its revenues ($10.6 million in 2013). Still, SARC has taken steps to negotiate stronger census and reimbursement for 2014 and Fitch expects steady to modest improvement in both occupancy and cash flow.
LIGHT LIQUIDITY CONSTRAINTS
Due to SARC's small revenue base and its significant exposure to Medicare and Medicaid payors, any positive rating movement would require liquidity metrics more closely reflect Fitch's 'BBB' category median levels. SARC maintained $7.8 million in unrestricted cash at June 30, 2013, and is not budgeting for meaningful growth over the near term. Further, its investment mix is aggressive, at approximately 85% equity to 15% fixed income allocations. Finally, SARC is contemplating a campus expansion over the longer term which could pressure its balance sheet metrics, but also provide more revenue diversity and keep SARC competitive within its mature market.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities'(June 2013).
Applicable Criteria and Related Research:
Rating Guidelines for Nonprofit Continuing Care Retirement Communities