Fitch Affirms Buckner Retirement Services, TX Rev Bonds at 'A'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'A' rating on the approximately $96 million Tarrant County Cultural Education Facilities Finance Corporation (TX) revenue bonds series 2007 issued on behalf of Buckner Retirement Services (BRS) obligated group.

The Rating Outlook is Stable.

SECURITY

Debt service payments are secured by a gross revenue pledge of the BRS obligated group. There is additional security from a credit and support agreement provided by Buckner Foundation (BF) who agrees to make contributions, advances or loans to BRS for timely payment of debt service. There is also a debt service reserve fund.

KEY RATING DRIVERS

SUPPORT OF FOUNDATION: The 'A' rating is largely based on the financial support provided by BF that has been formalized through a credit and support agreement. BF's unrestricted cash and investments relative to BRS obligated group's debt and debt service are strong. At March 31, 2014, BF had total unrestricted cash and investments of $174 million available for timely payment of BRS obligated group's debt service. BF's sole purpose is to support the operations of Buckner International (BI) and BRS is a subsidiary of BI. Other subsidiaries include Buckner Children and Family Services and Buckner Adoption and Maternity Services.

VERY GOOD OCCUPANCY: The BRS obligated group owns and operates four predominately rental continuing care retirement communities (CCRC) in Austin, Beaumont, Longview, and Houston, Texas and one independent living facility in Dallas, TX. Occupancy rates at all the campuses have consistently been strong except for Dallas. The Dallas campus is not currently being marketed and management is evaluating various options to convert the campus into other services for low income seniors.

CONSISTENT FINANCIAL PERFORMANCE: The BRS obligated group's core operating profitability has been solid reflected in operating ratios of 88.5% and 89.2% in 2012 and 2013, respectively, which provides good revenue-only debt service coverage of 1.6x and 1.5x in fiscal 2012 and 2013 (Dec. 31 fiscal year end).

CAPITAL PLANS: Buckner Senior Living, a subsidiary of BRS was incorporated for plans to build a new CCRC in North Dallas, which is expected to be financed on a standalone basis. BF has to date provided a guarantee on a loan of up to $13 million but no additional support from BF is expected for this start up facility.

RATING SENSITIVITIES

MAINTENANCE OF FOUNDATION ASSETS: A decline in BF's available resources due to investment performance or additional support provided to other affiliates could result in negative rating pressure.

CREDIT PROFILE

The BRS obligated group comprises five predominately rental retirement communities located in Austin, Beaumont, Dallas, Longview, and Houston with a total of 501 independent living units (ILUs), 138 assisted living units (ALUs), 105 dementia care units and 186 skilled nursing beds. Of the 501 ILUs, only 24 are entrance fee model. For the fiscal year ended Dec. 31, 2013, the BRS obligated group had total revenue of $49 million. BRS includes two other subsidiaries - Baptist Memorial Ministries, which has a CCRC in San Angelo, Texas and Buckner Senior Living, which was incorporated to develop the new CCRC in North Dallas. BRS is a subsidiary BI, which is a Texas non-profit corporation that cares for families, needy children, and the elderly. BF's sole purpose is to support the activities of BI and beginning in fiscal 2014, BF will be consolidated into BI. Fitch's analysis is based on BRS obligated group financials (from consolidating schedule in BRS audit) plus the available assets of BF.

Support of Foundation

The credit and support agreement is irrevocable and in effect as long as the bonds are outstanding. BF had $174 million of unrestricted cash and investments at March 31, 2014, which has increased from $123.4 million at Dec. 31, 2012. BF usually distributes 5%-6% of a four year average of its investment portfolio, however, in recent years, there have been distributions in excess of the formula due to losses at Children and Family Services. Management is planning to reduce expenses at Children and Family Services to reach breakeven performance within five years. BF's investment policy has not changed and the targeted asset allocation is 45% equities, 30% fixed income, and 25% alternative investments.

On a combined basis, BF and BRS obligated group's unrestricted cash and investments to BRS obligated group's debt was 193.9% and relative to debt service was 26.6x at March 31, 2014 compared to the A category of 125.2% and 15.3x. If BRS obligated group's debt service coverage falls below 1.1x, BF is required to maintain unrestricted net assets at least equal to 75% of BRS obligated group's outstanding debt. BF had $238 million of unrestricted net assets at Dec. 31, 2013.

Strong Occupancy

BRS obligated group has maintained strong occupancy at each of its retirement communities except for Dallas. Overall occupancy for the quarter ended March 31, 2014 was 97% at Houston, 98% at Longview, 94% at Beaumont, 29% at Dallas and 95% at Austin.

The existing Dallas facility has been challenged by its location and management is evaluating options to convert the campus into other services for low income seniors. Strong occupancy at the other campuses have been driven by their location and various marketing initiatives.

Good Operating Performance

Operating ratios have consistently been below 100% and was 89.2% for fiscal 2013 and was 86.9% through the three months ended March 31, 2014. Strong operating performance has been driven by solid occupancy, consistent rate increases of 3% and managing expense growth relative to rate increases.

Manageable Capital Plans at Obligated Group Level

The BRS obligated group has manageable capital plans and the fiscal 2014 capital budget of $2.5 million includes $1 million for electronic medical record implementation. Fitch will monitor the developments with the start up CCRC, which may have the potential to dilute BF resources available to the BRS obligated group.

Conservative Debt Profile

The only debt outstanding of the obligated group is the series 2007 bonds, which is 100% fixed rate. Total debt of BI was $106 million, of which $96 million was related to BRS obligated group. Management indicated that there will not be a credit and support agreement from BF for the financing of the new start up CCRC.

Disclosure

BRS obligated group covenants to provide annual disclosure within 150 days of fiscal year end and quarterly disclosure within 45 days of each quarter end.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--Not-for-Profit Continuing Care Retirement Communities Rating Criteria, July 10, 2013;

--U.S. Nonprofit Institutions Rating Criteria, May 29, 2014.

Applicable Criteria and Related Research:

Not-for-Profit Continuing Care Retirement Communities Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712401

U.S. Nonprofit Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749100

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=834842

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Emily Wong
Senior Director
+1-415-732-5620
Fitch Ratings, Inc.
650 California St.
San Francisco, CA 94108
or
Secondary Analyst
Dana Sodikoff Ringer
Director
+1-312-368-3215
or
Committee Chairperson
Jim LeBuhn
Senior Director
+1-312-368-2059
or
Media Relations:
Elizabeth Fogerty, New York, +1 (212) 908 0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings, Inc.
Primary Analyst
Emily Wong
Senior Director
+1-415-732-5620
Fitch Ratings, Inc.
650 California St.
San Francisco, CA 94108
or
Secondary Analyst
Dana Sodikoff Ringer
Director
+1-312-368-3215
or
Committee Chairperson
Jim LeBuhn
Senior Director
+1-312-368-2059
or
Media Relations:
Elizabeth Fogerty, New York, +1 (212) 908 0526
elizabeth.fogerty@fitchratings.com