Fitch Rates Buckingham Senior Living Community, Inc.'s (TX) Rev Bonds 'BB'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned a 'BB' rating on the following bonds issued by Tarrant County Cultural Education Facilities Finance Corporation on behalf of Buckingham Senior Living Community, Inc. (The Buckingham):

--$54.6 million Series 2015A Fixed-Rate Bonds;

--$25.0 million Series 2015B-1 Tax-Exempt Mandatory Paydown Securities; and

--$34.0 million Series 2015B-2 Tax-Exempt Mandatory Paydown Securities.

In addition, Fitch Ratings has assigned a 'BB' rating to the following previously issued bonds:

--$64.0 million Series 2007 Fixed-Rate Bonds; and

--$18.6 million Series 2014 Fixed-Rate Bonds.

The series 2015A bonds are expected to be issued as fixed rate. The series 2015B bonds are anticipated to be issued as temporary debt payable from initial entrance fees derived from the sale of independent living units (ILU) after The Buckingham meets certain occupancy thresholds. The bonds are scheduled to be sold via negotiated sale by Ziegler on July 23, 2015.

Bond proceeds will be used for the construction and renovation of 106 additional ILU's, 27 additional assisted living units (ALU), 18 additional memory support units and 32 additional skilled nursing facility (SNF) beds; improvements to common areas, amenities and parking; funding future capital expenses including $4 million for water damage; separate accounts for the debt service reserve funds for each bond series; and 27 months of capitalized interest.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a mortgage lien on the community's property, a gross revenue pledge, and series-specific debt service reserve funds.

KEY RATING DRIVERS

AGGRESSIVE EXPANSION PLANS: The Buckingham is embarking on a large campus expansion and renovation project that includes a 56% increase in the number of units offered and enhanced common areas. Total direct project costs are sizeable and amount to about $78.5 million.

CONSTRUCTION AND FILL-UP RISKS: The 32-month construction project is substantial and involves multiple components including new units, renovated and removed units, and new activity space for all residents. Managing the various project stages as well as filling-up the new units in a timely and cost-effective manner poses operating challenges.

INCREASING AND VERY HIGH DEBT POSITION: The Buckingham's long-term debt increases dramatically with this bond issue and will amount to approximately $134 million post issuance. Additionally, the community plans to issue $59 million of temporary debt that is reliant upon repayment from initial entrance fees after the sale of new ILUs. This level of debt does not compare favorably to unrestricted cash and investments, adjusted capitalization, net available or total revenues.

STRONG UNDERLYING CREDIT FACTORS: The 'BB' rating reflects The Buckingham's historically strong demand indicators, with ILU occupancy averaging above 95% over the last three and a half years and ALU and SNF occupancies experiencing similar trends; good pre-sale velocity with 63% of the 106 new ILU's securing 10% deposits; the depth and experience of the project participants, including the management and development companies; and the affluent demographics of the primary market area. Fitch believes that these underlying credit factors offset the construction and fill-up risks and the debt burden, which is sizeable at the current rating level.

GOOD OPERATING PERFORMANCE: Over the last four audited years cash flow from operations has been solid. During this period, the adjusted net operating margin averaged 30.7%, which compares well to the investment grade median. Despite a high debt burden, actual annual debt service coverage has been satisfactory at 1.4x and 1.5x, respectively, in fiscal years 2013 and 2014.

RATING SENSITIVITIES

PROJECT MANAGEMENT: The 'BB' incorporates the history of the development team in successfully managing the construction and fill-up risk on other similar undertakings and assumes that the expansion project will meet projections. Construction delays, cost overruns, higher than expected working capital requirements, and occupancy and fill-up levels that lag projections could result in negative rating action.

MAINTENANCE OF OPERATING PROFILE: The 'BB' rating assumes that The Buckingham's current operating profile, characterized by high occupancy across all levels of care, strong adjusted net operating margins, and adequate coverage of actual debt service, remains stable. Should any of these weaken during the construction and fill-up periods or liquidity declines, there could be negative rating pressure.

CREDIT PROFILE

Located in the Memorial/Tanglewood section of Houston, TX, The Buckingham is a continuing care retirement community (CCRC) that opened in 2005 and achieved stabilized occupancy in September 2007. It currently offers 204 ILU's, 43 ALU's, 16 memory support units, and 60 SNF beds. Total operating revenues amounted to $22 million in fiscal year 2014.

The Buckingham's parent company and sole corporate member is Senior Quality Lifestyles Corporation (SQLC). SQLC is also the parent company of Fitch 'BBB' rated Edgemere, three other CCRC's in Texas and one in Carmel, IN with a total of 1,857 units. Only The Buckingham is obligated on the series 2015 bonds and its other indebtedness. SQLC and The Buckingham also continue to retain Greystone Management Services to manage the community's operations.

DISCLOSURE

Buckingham will covenant to disclose audited financial statements within 150 days, and quarterly financial statements within 45 days, to 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

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987895

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987895

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Paul Rizzo, +1-212-612-7875
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Emily Wadhwani, +1-312-368-3347
Director
or
Committee Chairperson
James LeBuhn, +1-312-368-2059
Senior Director
or
Media Relations
Sandro Scenga, +1-212-908-0278 (New York)
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Paul Rizzo, +1-212-612-7875
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Emily Wadhwani, +1-312-368-3347
Director
or
Committee Chairperson
James LeBuhn, +1-312-368-2059
Senior Director
or
Media Relations
Sandro Scenga, +1-212-908-0278 (New York)
sandro.scenga@fitchratings.com