News Column

Fitch Affirms Goodwin House Incorporated (VA) at 'BBB'; Outlook Stable

June 20, 2014

SAN FRANCISCO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'BBB' rating on the following bonds issued by the Fairfax County Economic Development Authority, VA and Industrial Development Authority of the City of Alexandria, VA (on behalf of Goodwin House Incorporated):

--$143 million series 2007;

--$25 million series 2005.

The Rating Outlook is Stable.

The 'BBB' rating pertaining to the series 2005 variable rate demand bonds (VRDBs) is an underlying rating. The series 2005 bonds are supported by a letter of credit (LOC) from Wells Fargo Bank, N.A. (rated 'AA-/F1+'; Stable Outlook by Fitch) that expires in July 2016.

SECURITY

The series 2007 bonds are secured by mortgages on Goodwin House Incorporated's (Goodwin House) real estate, a gross receipts pledge, and a debt service reserve fund. The series 2005 bonds are equally secured by Goodwin House's real estate and gross receipts pledge, and are also secured by a LOC from Wells Fargo Bank, N.A.

KEY RATING DRIVERS

STRONG BALANCE SHEET: Goodwin House continues to have strong balance sheet metrics for its rating level. As of March 31, 2014 (six-months; unaudited), unrestricted cash and investments totaled $136.9 million, which translated into 941.6 days cash on hand (DCOH), 13.1x cushion ratio, and 82.7% cash to debt, which compares favorably against Fitch's 'BBB' medians of 371.3 DCOH, 6.9x, and 58.9%, respectively.

SOLID DEMAND CHARACTERISTICS: Goodwin House maintains solid occupancy across all levels of care. In fiscal 2013 (Sept. 30 year-end; audited), independent living unit (ILU) occupancy was a high 96.4%, assisted living unit (ALU) occupancy was 95%, and skilled nursing facilities (SNF) occupancy was 95%. Fitch continues to believe that Goodwin House's solid demand is a key credit strength which supports the organization's successful financial profile.

GOOD SERVICE AREA: Operating in Northern Virginia, Goodwin House's markets display good service area characteristics such as above average wealth indicators, and relatively stable housing markets - all of which support Goodwin's strong demand.

LARGE CAPITAL PLANS: Management has been planning for a significant repositioning project for the last several years at its Goodwin House-Alexandria campus, which is now expected to commence over the next two years. The preliminary cost of the project is expected to be approximately $55 million-$60 million, which will be funded by debt and equity. Fitch will continue to monitor Goodwin House's capital plans and review debt plans at the time of issuance.

GOOD DEBT SERVICE COVERAGE: Maximum annual debt service (MADS; $10.4 million) coverage (including turnover entrance fees only) was a solid 2.2x in fiscal 2013, which compared favorably against Fitch's 'BBB' category median 1.9x. However, there is a reliance on entrance fees for debt service coverage, fairly typical for Type A facilities, which results in a low revenue-only coverage of 0.4x in 2013, below the median of 0.9x. Additionally, Fitch believes Goodwin House has a somewhat high debt burden measured by MADS as a percentage of revenue of 15.3%, above the Fitch median of 12.4%, which contributes to the low revenue-only coverage.

RATING SENSITIVITIES

CONTINUE CURRENT PERFORMANCE: Fitch expects Goodwin House to sustain its current financial profile and solid demand characteristics.

CAMPUS REPOSITIONING PROJECT: Although Goodwin House's Alexandria campus repositioning project is approximately two years away, the looming large capital plan tempers any positive rating action at this time.

CREDIT PROFILE

Goodwin House is a Type A continuing care retirement community (CCRC) that operates campuses in Alexandria, VA and Bailey's Crossroads, VA. Goodwin House Alexandria (GHA) consists of 261 ILUs, 41 ALUs, and 80 SNF beds. Goodwin House Bailey's Crossroads (GHBC) consists of 335 ILUs, 42 ALUs, 69 SNF beds, and 16 memory support beds. In fiscal 2013, Goodwin House had total operating revenues $66 million.

RATING AFFIRMATION OF 'BBB'

The 'BBB' rating continues to be supported by Goodwin House's strong balance sheet, good demand indicators, positive service area characteristics, and adequate profitability generation that supports solid MADS turnover entrance fee only debt service coverage. Fitch's main credit concerns continue to be Goodwin House's low debt service coverage by revenue only and large looming capital plans.

SOLID DEMAND IN A FAVORABLE SERVICE AREA

Goodwin House's solid demand characteristics help support the organization's overall successful financial profile. Goodwin House has a long history of operating in the Northern Virginia service area, which is an additional positive credit factor. The primary markets of Arlington County (general obligation [GO] bonds rated 'AAA' by Fitch) and Fairfax County (GO bonds rated 'AAA' by Fitch) each have solid population growth trends, high wealth levels, and a diverse economic base. Additionally, entrance fees continue to be consistent with local housing prices.

CAMPUS REPOSITIONING PROJECT

Management is currently preparing for a fairly significant campus repositioning project at its Goodwin House-Alexandria campus, which is expected to commence over the next 24 months. Positive rating pressure continues to be limited at this time primarily due to the capital plans and the organization's already sizeable debt burden. Fitch will evaluate the project's impact on Goodwin House's credit rating so there is more clarity surrounding the project.

DEBT PROFILE

Approximately 84% of Goodwin House's debt is fixed-rate and 16% is variable-rate ($25 million). The LOC with Wells Fargo expires in July 2016. Goodwin House also has an outstanding swap with Allied Irish Bank that had a negative mark-to-market valuation of $1.2 million as of March 31, 2014. However, Goodwin House has no collateral posting requirements related to the swap, which expires in October 2015. Overall, Fitch views the organization's debt profile as appropriate for the rating level.

DISCLOSURE

Goodwin House provides quarterly utilization and financial information to the MSRB's EMMA system. Fitch views Goodwin House's disclosure practices as excellent, since it includes management discussion and analysis and semiannual investor calls.

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

Applicable Criteria and Related Research:

--'Not-for-Profit Continuing Care Retirement Communities Rating Criteria', July 10, 2013.

Applicable Criteria and Related Research:

Not-for-Profit Continuing Care Retirement Communities Rating Criteria

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=835683

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

Michael Burger

Director

+1-415-659-5470

Fitch Ratings, Inc.

650 California Street, Fourth Floor

San Francisco, CA 94123

or

Secondary Analyst

Dana Ringer

Director

+1-312-368-3215

or

Committee Chairperson

Eva Thein

Senior Director

+1-212-908-0674

or

Media Relations

Elizabeth Fogerty, New York, +1-212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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