News Column

Fitch Affirms Christian Care Centers (TX) Revs at 'BBB-'; Outlook Stable

May 1, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'BBB-' rating on approximately $30.8 million in outstanding Mesquite Health Facilities Development Corporation retirement facilities revenue bonds, series 2005, issued on behalf of Christian Care Centers, Texas (Christian Care).

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a gross revenue pledge, a mortgage lien on Christian Care's property, and a debt service reserve fund.

KEY RATING DRIVERS

STABLE OPERATING RESULTS: Christian Care's financial profile has been relatively consistent over the last four years with an operating ratio between 91%-94% (fiscal 2010-2013; Dec. 31 year end) and net operating margin between 10%-13%, which are both favorable against the 'BBB' category medians. Fitch expects operating profitability to remain in line with the rating category.

GOOD OCCUPANCY: Occupancy remained good at or above 86% across the continuum of care over the last three years.

SOLID DEBT SERVICE COVERAGE: Christian Care's current debt burden is relatively light for the category with maximum annual debt service (MADS) comprising 8.5% of total fiscal 2013 revenue compared with the 'BBB' category of 12.4%. MADS coverage of 2.1x for fiscal 2013 and 2.9x through the three month interim ended March 31, 2014, is favorable against the 'BBB' category median of 1.9x. Revenue only coverage was solid at 1.8x in fiscal 2013.

IMPROVED PAYOR MIX: Christian Care has significantly reduced its exposure to governmental payors with the sale of one of its nursing homes in 2013. The percentage of net revenue from Medicare and Medicaid reduced to 37% in 2013 from 72% the prior year. The Allen project is expected to further improve Christian Care's payor mix.

RATING SENSITIVITIES

CAPITAL PROJECT UNDERWAY: Christian Care is moving forward with the construction of a satellite campus in Allen, Texas. This new facility is expected to have 22 cottages (rental units), 32 memory care units and 32 assisted living units (ALUs). In addition, there will be space for outpatient therapy and hospice care. The feasibility study is underway and the total project cost is estimated at $15 million. Management is considering its financing options but expects to finance with a direct placement or bond issuance. Fitch will assess the impact of the financing within the next few months when additional details on the size and scope are available.

CREDIT PROFILE

Located around the Dallas-Ft. Worth Metroplex, Christian Care consists of two senior living campuses, with a total of 386 independent living units (ILUs), 139 ALUs, and 223 skilled nursing facility (SNF) beds. Total operating revenue in fiscal 2013 was $35.6 million. Christian Care closed the operations at the Hilltop Haven Health Care Center and Howard Independent Living Apartments divisions located in Gunter, Texas in 2013 as renovations to bring this facility to current standards were cost prohibitive. Although this reduced Christian Care's revenue base, the financial impact was positive since the facility was operating at a loss and had a high exposure to governmental payors. The affirmation at 'BBB-' reflects Christian Care's consistent financial profile, good occupancy and moderate debt burden.

FINANCIAL PROFILE

Christian Care's financial performance is characterized by a solid history of good operating performance and steady debt service coverage. In fiscal 2013 operating ratio was 93.8%, remaining favorable to the 'BBB' category median of 97.2%. Net operating margin of 10.2% during the same time period compares well to the 'BBB' category median of 9.9%. Adjusted net operating margin was only 12.1% in fiscal 2013 reflecting the significant percentage of rental ILUs (about 80%) compared to entrance fees (about 20%). Christian Care is budgeting about $1 million net income from consolidated operations in fiscal 2014 compared to $828,000 in fiscal 2013, which Fitch expects it to meet.

MADS equates to a manageable 8.5% of fiscal 2013 revenues, which remains favorable to the 'BBB' category median of 12.4%. MADS coverage by turnover entrance fees of 2.9x at March 31, 2014 (three month interim) was improved from 2.1x in fiscal 2013 and above the 'BBB' category median of 1.9x. Revenue only coverage during the three month interim period was strong at 2.1x compared to the 'BBB' category median of 0.9x and is expected to remain at a healthy level given its unit mix and residency type.

Liquidity metrics are mixed. At March 31, 2014, Christian Care's unrestricted cash and investments totaled $22.4 million, which equates to a relatively light 218.6 days compared to the 'BBB' category median of 371.3 days. However, cash to debt and cushion ratio of 56.9% and 7x, respectively are in line with Fitch's medians. In addition, Fitch believes that the lower-than-average days cash on hand position is mitigated by the fact that Christian Care does not offer lifecare or modified lifecare contracts. Capital spending has been somewhat low for the last three years, averaging about 78.4% of depreciation annually from 2011-2013 compared to the 'BBB' category median of 85.3%. Capital spending has likely been light as Christian Care is gearing up for its expansion project. Management has budgeted $2.1 million for routine capital spending in fiscal 2014.

CAPITAL PROJECT MOVING FORWARD

Christian Care is undertaking a sizable capital project on a satellite campus in Allen, Texas, which will be funded from either a direct placement or bond proceeds. Fitch will review the impact of the additional debt when the size and scope are finalized; likely within the next few months. The project will include construction of 86 total units across the continuum of care including new memory care and assisted living units and 22 cottages, space for outpatient therapy and hospice.

STABLE HISTORICAL OCCUPANCY

Historical occupancy across each level of care has been relatively consistent over the past three years (2011 - 2013), averaging 88.4% for ILUs, 90.6% for ALUs and 91.4% for the SNF units. At March 31, 2014, occupancy in the ILUs, ALUs and SNF were 94.1%, 86.3% and 94.1%, respectively. Christian Care invigorated its marketing campaign to include targeted radio and television advertising, direct mailings and additional sales staff as well as a super heroes marketing campaign featuring actual stories of residents.

MANAGEABLE DEBT BURDEN

Total outstanding debt is about $39.3 million with about 80% fixed rate and 20% variable rate. In addition to the $30.8 million fixed rate series 2005 debt rated by Fitch, Christian Care has about $2.5 million series 2000B Ziegler EXTRAs periodic reset bonds and about $5.8 million series 2000C variable rate demand bonds with a letter of credit from Bank of America, which was extended through April 30, 2017. These two series are not rated by Fitch but considered in the analysis.

DISCLOSURE

Christian Care covenants to provide annual and quarterly financial and utilization statements to the Municipal Securities Rulemaking Board's EMMA system.

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

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (June 3, 2013);

--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities' (July 10, 2013).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499

Not-for-Profit Continuing Care Retirement Communities Rating Criteria

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

Additional Disclosure

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Dana S. Ringer, +1-312-368-3215

Director

Fitch Ratings, Inc.

70 West Madison Street

Chicago, IL 60602

or

Secondary Analyst

Emily Wong, +1-415-732-5620

Senior Director

or

Committee Chairperson

Jim LeBuhn, +1-312-368-2059

Senior Director

or

Media Relations, New York

Elizabeth Fogerty, +1-212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Business Wire


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters