Fitch Affirms Bishop Gadsden (SC) Revs at 'BBB'; Outlook Remains Stable

NEW YORK--()--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):

--$13.8 million revenue and refunding bonds, series 2002F1;

--$17.6 million refunding revenue bonds, series 2007.

The Rating Outlook is Stable .

Bishop Gadsden has an additional $28.7 million in series 2014 bonds which Fitch does not rate, as well as a $27.1 million draw-down construction loan ($3 million left outstanding at May 31, 2016) 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

STABLE OPERATING PROFILE: Bishop Gadsden's operating profile is characterized by a strong operating ratio, which has averaged at 95.5% over the last three years, and net operating margin (NOM)-adjusted which has averaged a high 28.3% over the same time period. Both metrics are favorable to the 'BBB' category medians of 96.1% and 19.3% and have remained strong through the three-month interim period (ended March 31, 2016).

EXPANSION PROJECT COMPLETED: Bishop Gadsden's 45 independent living unit (ILU) expansion project, The Quay, was completed on time and on budget and has reached 100% occupancy in March of 2016. Fitch views the completion and fill-up of the project favorably, and expects it to have a positive impact on financial performance as Bishop Gadsden benefits from incremental monthly resident fees.

HIGH, BUT MODERATING DEBT BURDEN: Bishop Gadsden's debt burden remains high as evidenced by maximum annual debt service (MADS) equating to 21.2% of 2015 revenues, significantly unfavorable to Fitch's median of 12.4%. However, with the fill-up of The Quay, Bishop Gadsden's revenue base is expected to increase, which should help moderate the debt burden. The growth is evident through the first quarter of 2016, when operating revenues were up 16% over the prior year period.

SOLID LIQUIDITY: Bishop Gadsden's $37.4 million in unrestricted cash and investments equated to 546 days cash on hand (DCOH), 61% cash to debt and a 6.0x cushion ratio, all in line with the 'BBB' category medians of 400 DCOH, 60% and 7.3x, respectively. Management notes that liquidity through the first quarter was impacted by front-loaded annual capital spending and that unrestricted cash should improve throughout the year as incremental revenues are collected.

FAVORABLE MARKET POSITION AND OCCUPANCY: Bishop Gadsden benefits from its position as the only facility offering the full continuum of care in a favorable service area. As a result, occupancy remained strong throughout all service lines with 98% ILU, 94% assisted living unit (ALU) and 93% skilled nursing facility (SNF) occupancies in 2015.

RATING SENSITIVITIES

FURTHER DEBT MODERATION: Fitch believes that Bishop Gadsden Retirement Community will continue to moderate its debt burden through incremental revenue and cash flow growth from The Quay residents, as well as additional new service lines. A continued moderation of the debt burden over the medium term, or an improvement in debt service coverage, could lead to positive rating action.

CREDIT PROFILE

Bishop Gadsden is a type-A continuing care retirement community (CCRC) with 260 ILUs, 88 ALUs (inclusive of a 19-bed Memory Care unit), and 46 skilled nursing beds. The community is located on James Island, approximately six miles from downtown Charleston. Bishop Gadsden reported total revenues of $28.6 million in 2015.

STABLE OPERATING PROFILE

Bishop Gadsden's operating ratio has historically been favorable to Fitch's 'BBB' category median and remained strong at 94.5% through the interim period. In addition, entrance fee receipts were solid through the interim, resulting in a strong NOM-adjusted of 26.4%. Management is budgeting to receive $7.2 million (comparable to 2015 receipts) in net entrance fee receipts and have a $1.7 million operating income in 2016, both which Fitch views as feasible given the sales trajectory and positive operating performance through the interim.

HIGH, BUT MODERATING DEBT BURDEN

Bishop Gadsden's debt burden has moderated through the interim period, driven by incremental revenue growth from new monthly service fees. MADS equated to a lower 19.3% of total annualized revenues through the three-month interim, down from 22.2% in 2014. Fitch would expect Bishop Gadsden's debt burden to continue moderating over the medium term as it realizes the full benefit of its expansion project, as well as service line expansions, including home health. Debt service coverage of 1.8x in 2015 remained unfavorable to Fitch's median, however, coverage has been consistent over the last three years, averaging at 1.9x. Debt to net available of 6.6x in 2015 is also moderating towards the 'BBB' category median of 5.9x.

DEBT PROFILE

Total debt was $73.5 million at 2015 year-end; however, debt decreased to $61.3 million at March 31, 2016, which reflected the payoff of a large portion of the 2014A draw-down loan. All of Bishop Gadsden's debt is fixed rate and it includes $31.4 million in publicly held bonds and $28.7 million in direct placement debt, of which $16.1 million has an initial 10-year term through 2024, and $12.6 million fully amortizes by April 2024. MADS is equal to $6.3 million, which assumes full repayment of the series 2014A draw-down from initial entrance fees.

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. 04 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868824

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=1005414

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005414

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

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Contacts

Fitch Ratings
Primary Analyst:
Dmitry Feofilaktov, +1-212-908-0345
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Paul Rizzo, +1-212-612-7875
Director
or
Committee Chairperson:
James LeBuhn, +1-312-368-2059
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Dmitry Feofilaktov, +1-212-908-0345
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Paul Rizzo, +1-212-612-7875
Director
or
Committee Chairperson:
James LeBuhn, +1-312-368-2059
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com