Fitch Affirms Tabor Hills (IL) Revs at 'BBB'; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed the 'BBB' rating on approximately $22.4 million of Illinois Finance Authority's revenue bonds, series 2006, issued on behalf of Tabor Hills.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of the gross revenues of the obligated group, a mortgage lien on the facility and a debt service reserve fund.

KEY RATING DRIVERS

STEADY LIQUIDITY GROWTH: Unrestricted liquidity has grown year-over-year for the past five years and is good for the rating category equaling 345.9 days cash on hand (DCOH), 10.7x cushion ratio and 79% cash to debt at June 30, 2014.

SOLID OPERATING PROFITABILITY: After a light fiscal 2012, which was impacted by increased pension expense, operating profitability was solid in fiscal 2013 and through the nine months ended June 30, 2014 and outperforms the 'BBB' profitability metrics. Tabor Hills' strong management team and incremental increases in private pay in the skilled nursing facility coupled with minimal reliance on entrance fees or investment gains is viewed positively by Fitch.

LOW DEBT BURDEN: In fiscal 2013 (September 30 year-end), maximum annual debt service (MADS) represented just 7.2% of total revenue compared to the 'BBB' category median of 12.4%. MADS coverage in fiscal 2013 was a solid 3.9x and improved from 1.5x in fiscal 2012 and was well above the 'BBB' category median of 1.9x. Revenue only coverage of 3.4x in fiscal 2013 and 2.6x through the nine-month interim period ended June 30, 2014 well exceeds the 'BBB' category median of 0.9x.

STRONG DEMAND: Occupancy at Tabor Hills is a credit strength with independent living unit (ILU) occupancy at 93.9%, assisted living unit (ALU) occupancy at 89.5% and skilled nursing facility occupancy at 85.9% at June 30, 2014 (nine-month interim).

HIGH PROPORTION OF SKILLED BEDS: The large proportion of revenues generated from skilled nursing services and its exposure to Medicaid is somewhat of a credit concern as it subjects the facility to greater operating risk due to high attrition and reimbursement pressures from governmental payors.

RATING SENSITIVITIES

SUSTAINED OPERATIONS: Fitch expects Tabor Hills to maintain its occupancy and operating performance at levels that will allow for consistent debt service coverage in line with the 'BBB' category. If continued strong financial performance continues, positive rating pressure may occur.

CREDIT PROFILE

Located in Naperville, IL (approximately 28 miles west of Chicago), Tabor Hills is a type-C continuing care retirement community consisting of 104 patio town homes, 211 skilled nursing beds and 95 supportive living units. Total operating revenue in fiscal 2013 was $20.5 million.

CONTINUED IMPROVEMENT TO LIQUIDITY

Tabor Hills has grown its unrestricted cash and investment position in each of the last five years, which led to an improvement in liquidity metrics. At June 30, 2014, Tabor Hills' unrestricted cash and investments totaled $14.5 million, which equates to 79% cash to debt and 10.7x cushion ratio, comparing favorably to the respective 'BBB' category medians of 58.9% and 6.9x. Liquidity against expenses has improved and DCOH was 345.9 at June 30, 2014 compared to the 'BBB' category median of 371.3.

GOOD OPERATING PROFITABILITY

Tabor Hills' consistently solid occupancy coupled with good expense controls continues to support stable profitability and incremental balance sheet improvement. Through the nine-months ending June 30, 2014, Tabor Hills produced an operating margin of 85.9% and net operating margin of 18.1%, compared to 98.8% and negative 4.1%, respectively, in fiscal 2012, reflecting the benefit of a reduction in its pension expense. Effective Dec. 31, 2013 Tabor Hills' froze its pension plan, reducing its pension expense in fiscal 2013 by $3.3 million. Tabor Hills introduced a 401(k) program with a match of up to 4%, effective October 1, 2014, which is expected to cost about $500,000 annually, which will reduce the volatility of the pension contribution. Tabor Hills expects to meet or exceed its fiscal 2014 budget.

MANAGEABLE DEBT BURDEN

Tabor Hills' debt burden is manageable with all fixed-rate debt and no swaps. Debt service coverage ratio of 3.9x in fiscal 2013 exceeds the 'BBB' category median of 1.9x but is somewhat inflated because of the elimination of the pension expense. Through the nine months ended June 30, 2014 debt service coverage ratio remained solid at 2.3x. Revenue only coverage was also very strong at 2.6x at June 30, 2014 and compared to the 'BBB' category median of 0.9x. Furthermore, MADS is a light 7.2% of fiscal 2013 revenues, comparing favorably to the 'BBB' category median of 12.4%. No additional debt is planned in the near term.

SOLID UTILIZATION

Despite competition in the market, 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 occupancy at 91.3% in fiscal 2013 and 93.9% at June 30, 2014. Average occupancy was 89.5% and 85.9% in the ALU and SNF, respectively, through the nine-month interim period.

HIGH PROPORTION OF SNFs

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 from reimbursement changes and higher turnover than a typical CCRC. However, Tabor Hills received 'distinct part' designation under Medicaid, which limits Medicaid eligible beds to 60 of its licensed 211 SNF beds. Management has continuously demonstrated its ability to effectively balance occupancy and payor mix and this will help management to further control the payor mix in its SNF, which will offset some risk from its exposure to Medicaid. Private pay has increased to 65% of gross revenues at June 30, 2014, up from 50% in fiscal 2010.

DISCLOSURE

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'.

Applicable Criteria and Related Research:

--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities' (July 24, 2014).

Applicable Criteria and Related Research:

Rating Guidelines for Nonprofit Continuing Care Retirement Communities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=40171

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=867374

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Contacts

Fitch Ratings
Primary Analyst
Dana S. Ringer, +1-312-368-3215
Director
Fitch Ratings, Inc.
70 West Madison
Chicago, IL 60602
or
Secondary Analyst
Jim LeBuhn, +1-312-368-2059
Senior Director
or
Committee Chairperson
Eva Thein, +1-212-908-0674
Senior Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Dana S. Ringer, +1-312-368-3215
Director
Fitch Ratings, Inc.
70 West Madison
Chicago, IL 60602
or
Secondary Analyst
Jim LeBuhn, +1-312-368-2059
Senior Director
or
Committee Chairperson
Eva Thein, +1-212-908-0674
Senior Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com