CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB' rating on the following bonds issued by the South Carolina Jobs-Economic Development Authority on behalf of The Episcopal Church Home d/b/a Bishop Gadsden Retirement Community (Bishop Gadsden):
--Approximately $14.7 million revenue and refunding bonds, series 2002F1;
--Approximately $19.1 million refunding revenue bonds, series 2007.
The Rating Outlook is Stable.
Bishop Gadsden has an additional $29.5 million in series 2014 bonds which Fitch does not rate, as well as a $27.1 million draw-down construction loan ($5.7 million drawn at March 31, 2015) to be repaid with initial entrance fees.
SECURITY
The bonds are secured by mortgages on Bishop Gadsden's real estate, a gross receipts pledge, and a debt service reserve fund.
KEY RATING DRIVERS
STEADY OPERATING RESULTS: The rating affirmation at 'BBB' reflects a continuation of healthier operating profitability, as reflected in a 95.7% operating ratio in 2014, which has sustained through the three month-interim ended March 31, 2015. This has improved significantly from 102.5% in 2011. Further, good net entrance fee receipts have supported solid net operating margin - adjusted, which was 30% in 2014 and 29.4% through the three-month interim, ahead of Fitch's 'BBB' category median of 20.4%.
ELEVATED DEBT BURDEN: A key credit concern is Bishop Gadsden's high debt burden. Maximum annual debt service (MADS) as a percentage of total operating revenues was a high 22.7% as of March 31, 2015 compared to Fitch's 'BBB' category median of 12.3%. In 2014, Bishop Gadsden generated 1.7x coverage of MADS, against Fitch's 'BBB' category median of 2x. Coverage of actual debt service was stronger at 2x in 2014, and Fitch notes that full debt service payments will not begin until 2017, as Bishop Gadsden has capitalized interest through its independent living unit (ILU) project construction.
LIQUIDITY REMAINS HEALTHY: Bishop Gadsden's liquidity metrics exceed all category metrics. At March 31, 2015, Bishop Gadsden's unrestricted cash and investments totaled $41.5 million, which equates to 669 days cash on hand and 6.6x cushion ratio, in line with the respective 'BBB' category medians of 408 days and 6.9x.
STEADY DEMAND: Bishop Gadsden benefits from its position as the only facility in a favorable service area, offering the full continuum of care. As a result, it continues to maintain solid utilization at 97.9% in ILUs, and above 92% in both assisted living and skilled nursing through March, 31, 2015. Fitch believes the 45-ILU expansion project (100% presold) will be accretive to Bishop Gadsden's financial profile once they reach stabilization in 2016.
RATING SENSITIVITIES
EXECUTION OF CONSTRUCTION PROJECT: Bishop Gadsden is in the midst of constructing 45 new ILU apartments, which are expected to begin filling in September 2015. Fitch believes that successful completion and fill-up by mid-year 2016 will be key to preserving the rating. Material deterioration in profitability or coverage during construction could result in negative rating pressure.
CREDIT PROFILE
Bishop Gadsden is a type-A continuing care retirement community (CCRC) with 215 ILUs, 90 assisted living units (ALUs; inclusive of a 19-bed Alzheimer unit), and 46 nursing care beds. The community is located on James Island, approximately six miles from downtown Charleston. Bishop Gadsden reported total revenues of $28.2 million in 2014 (fiscal year ended Dec. 31).
EXPANSION PROJECT UNDERWAY
Bishop Gadsden is well underway on its 45-unit ILU expansion, which is contiguous to the community on land purchased in 2013. Construction is expected to be complete in August 2015, with the first occupants moving in September. Stabilization was forecast for May 2016, and the project remains on time and within the $42.8 million budget. Approximately $5.5 million has been drawn on the $21.7 million series 2014A loan, which will be repaid with initial entrance fees no later than May 1, 2018 (48 months post-close).
Fitch views the project favorably, as it should support stronger cash flow given Bishop Gadsden's consistent demand and strong ILU occupancy, supporting debt moderation over the longer term. Still, successful execution will be necessary for Bishop Gadsden to reach stabilization and repay its series 2014A debt in the short term.
DEBT PROFILE
Total debt was $63.3 million at fiscal 2014, of which $33.8 million (53%) was fixed-rate publicly held bonds and $29.5 million was fixed-rate direct placement debt, of which $16.1 million has an initial 10-year term through 2024, and $13.4 million fully amortizes by April 2024. Bishop Gadsden has no swaps. MADS is equal to $6.3 million, which assumes full draw on the series 2014A bonds. Current debt service is $5.3 million, and the first full debt service payment occurs in 2017. In 2014 Bishop Gadsden generated 1.97x debt service coverage per its covenant calculation, based on $5.3 million in debt service.
DISCLOSURE
Bishop Gadsden covenants to provide annual disclosure (within six months) and also provides quarterly disclosure to bondholders through the Municipal Securities Rulemaking Board's EMMA System.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Not-for-Profit Continuing Care Retirement Communities Rating Criteria (pub. 24 Jul 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752470
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985810
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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