In addition, Fitch affirms LSS' outstanding debt, which is listed at the end of the press release.
The Rating Outlook is Stable.
The series 2014A bonds are expected to be issued as fixed rate debt. Bond proceeds will be used for project costs associated with various facilities (including repayment of a PNC construction loan that has financed the start of several projects), refunding of the series 2004 bonds (approximately
Debt payments are secured by a pledge of the gross revenues of the obligated group. In addition, debt service reserve funds on the fixed-rate issues provides additional bondholder security.
KEY RATING DRIVERS
LARGE REVENUE BASE; STRONG REGIONAL PRESENCE: LSS benefits from the size and scale as the owner and manager of six continuing care retirement community (CCRC) facilities in
ELEVATED DEBT BURDEN: LSS' debt burden is high and increasing with the issuance of the series 2014 bonds reflecting its robust capital reinvestment strategy. Pro forma maximum annual debt service (MADS) represents 15.6% of total fiscal 2013 revenue but coverage of pro forma MADS (including turnover entrance fee receipts) was good at 1.9x in 2013. Fitch believes LSS' effective management practices and solid track record somewhat mitigates the risks of its high leverage position. In addition, the projects that are being financed are expected to be accretive to the overall financial profile over the next three to five years.
SIGNIFICANT CAPITAL SPENDING CONTINUES: LSS has focused on the repositioning and expansion of several of its communities over the last five years. LSS is issuing approximately
STABLE 2013 RESULTS: Operating performance and financial metrics in fiscal 2013 were consistent with fiscal 2012 results and exhibited good profitability, stable liquidity and somewhat improved debt service coverage.
CONSISTENTLY SOLID OCCUPANCY: Occupancy across the continuum of care has been consistent and was a solid 92.2% in the ILUs, 92.7% in the ALUs and 91.4% in the SNF as of
LIMITED DEBT CAPACITY: LSS' debt burden is elevated, and debt capacity is limited at the current rating level without commensurate improvement in liquidity and debt service coverage metrics.
STABILITY EXPECTED: Although there may be some near-term pressure on coverage metrics as a result of the additional debt without immediate additional revenue, Fitch expects debt service coverage to return to levels more consistent with the rating category within a three-year period. In addition, Fitch expects LSS to maintain solid occupancy, leading to good operating profitability. A decline in debt service coverage ratios greater than projected could lead to negative rating pressure.
LSS is a Type-C provider headquartered in
The 'BBB+' affirmation reflects LSS' consistent profitability, solid occupancy, and good liquidity indicators, which are tempered by a growing debt burden.
ELEVATED DEBT BURDEN; SIGNIFICANT CAPITAL SPENDING
Pro forma MADS of
LSS will have approximately
Capital spending has been very robust, particularly over the last four years, averaging 211.4% of deprecation (2010-2013), which significantly exceeds the 'BBB' category median average of 85.3% as LSS has been funding campus renovations and upgrades throughout its system. A large portion of the spending from the last issuance in 2011 was on additional ILUs at Laclede Groves and 40 bed assisted living facility at Lenoir Woods. Both were well received and management continues to update and upgrade its facilities. The series 2014 financing will be used to finance a 40-bed expansion at Meramec Bluffs (
Although LSS' debt burden is elevated, Fitch believes the capital spending has been a contributing factor to the system's strong historical occupancy levels and expects LSS will grow into its debt burden within the next three years as the projects come online. Given LSS' size, there are ongoing potential projects, which could be financed by additional debt. Fitch believes there is limited debt capacity at the current rating level without commensurate improvement in liquidity and debt service metrics.
CONSISTENT FINANCIAL PROFILE
LSS' operating profitability has been solid and consistent over the last four years. In 2013 (
Many of LSS' liquidity indicators have been light in the past, reflecting the system's type-C contract and significant capital investments. However, LSS has been building its balance sheet and despite the additional
LSS' disclosure practices are excellent. In addition to audited financial statements, quarterly disclosure includes balance sheet, income statement, statement of cash flows, occupancy statistics and detailed management discussion and analysis.
Fitch affirms the following outstanding debt:
Additional information is available at 'www.fitchratings.com'
--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities' (
Rating Guidelines for Nonprofit Continuing Care Retirement Communities
Source: Fitch Ratings
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