News Column

Fitch Affirms Springpoint Senior Living (NJ) Bonds at 'BBB+'; Outlook Stable

July 28, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the rating on the following New Jersey Economic Development Authority revenue bonds on behalf of Springpoint Senior Living 1998 Obligated Group (Springpoint, Springpoint OG) at 'BBB+':

-- $9.2 million series 1998A.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of gross receipts and mortgage on all property of the Springpoint Senior Living 1998 Obligated Group.

KEY RATING DRIVERS

STABLE FINANCIAL PROFILE: Springpoint's financial performance has remained largely stable over the last four audited years. In 2013, Springpoint posted a 99.1% operating ratio, a 7.5% net operating margin-adjusted, and debt service coverage of 1.5x. While all of these figures trail Fitch's 'BBB' category medians, they are very consistent with historical levels of performance.

IMPROVED OCCUPANCY: Independent living unit (ILU) occupancy improved to 83.7% in fiscal 2013 from 79% in fiscal 2011. Fitch expects occupancy to continue to strengthen, which should impact Springpoint's operating performance positively in the near- to medium-term.

MANAGEABLE DEBT BURDEN: Springpoint carries a light debt burden, as evidenced by maximum annual debt service (MADS) of 7.7% of revenue in fiscal 2013, compared to Fitch's 'BBB' category median of 12.4%. Springpoint OG's liquidity relative to debt also compares well to Fitch's 'BBB' medians.

OTHER CREDIT STRENGTHS: Springpoint is the largest not-for-profit senior living provider in New Jersey and has a large revenue base of over $70 million, more than 900 ILUs, and three separate campuses. In addition, Fitch views Springpoint's almost 100-year operating history in New Jersey as a positive. Fitch believes that Springpoint's size, diversity and long operating history help to mitigate the organization's thin operating performance relative to Fitch's 'BBB' medians.

RATING SENSITIVITIES

MAINTENANCE OF CURRENT PERFORMANCE: While Fitch expects Springpoint to maintain, or improve from, historical operating performance, any deterioration in operating profitability or entrance fee receipts could trigger rating pressure.

CREDIT PROFILE

Springpoint OG consists of Springpoint Senior Living Inc., the Springpoint Foundation, as well as three continuing care retirement communities (CCRCs): Meadow Lakes - 261 ILUs, 28 assisted living units (ALUs), 16 dementia units and 60 nursing beds; Monroe Village - 287 ILUs, 28 ALUs, and 60 nursing beds; and Crestwood Manor - 362 ILUs and 64 nursing beds. The OG had total revenues of $74.6 million in fiscal 2013.

STABLE FINANCIAL PROFILE

Springpoint's financial profile has remained consistent over the last four audited years. From 2010 to 2013, Springpoint's operating ratio averaged 99.1% and its net operating margin-adjusted averaged 7%, relative to Fitch's 'BBB' category medians of 97.2% and 21.3%, respectively. Debt service coverage by turnover entrance fees over this period ranged from 1.4x to 1.6x, relative to a median of 1.9x. While most of Springpoint's financial metrics trail Fitch's 'BBB' category medians, the organization's size, seasoned management team, operational longevity, and stable performance help mitigate some of the concerns of the weaker financial performance.

Five-month 2014 interim period results show a year-over-year improvement in performance, with the operating ratio at 96.6%, net operating margin-adjusted at 6.2%, and coverage at 1.2x, compared to 2013 five-month results of 99.1%, 3.8%, and 0.7x, respectively. Revenue-only debt service coverage was solid as well at 1x. Springpoint's revenue-only coverage is a credit strength and has remained at, or above, the Fitch 'BBB' median of 0.9x through the four-year historical period.

Improving ILU occupancy has helped operational performance. In 2013, Springpoint's ILU occupancy climbed above 80% and has remained above 80% in the interim period, after being at approximately 79% over the prior two years. Improvements in occupancy have been driven by stronger marketing and an improving housing market.

Crestwood Manor continues to have the softest occupancy in the OG, mainly due to one building which is located on the edge of that campus and which has occupancy of approximately 36%. Springpoint is pursuing a strategy that would leverage available government funds to convert the building into subsidized housing. Fitch believes the strategy could bring a positive resolution for the building, which has been a drag on Springpoint's overall occupancy for a number of years.

DEBT AND LIQUIDITY PROFILE

Fitch views Springpoint's manageable debt burden, as indicated by MADS as a 7.7% percent of revenue in fiscal 2013, as a key credit strength at the current rating level. The low debt burden eases the pressure on Springpoint's operations.

Liquidity has remained very stable over the last four years and through the interim period. At May 31, 2014, Springpoint had $47 million in unrestricted cash and investments, which equated to 233.5 days cash on hand (DCOH), an 8x cushion ratio, and 60.8% cash to debt. While DCOH trailed the category medians, both cash to debt and cushion ratio compare well to the category medians.

DEBT PROFILE & CAPITAL PLANS

Fitch views Springpoint's overall debt structure as aggressive for the rating category, with approximately 87.5% of its $77 million in long-term debt in a variable-rate mode. The variable-rate bonds are all privately placed, with put dates in July and November of 2018. The large percentage of Springpoint's debt coming due in the second half of 2018 is a credit concern as well, although currently mitigated by the amount of time still remaining until the put dates. Springpoint has two variable-to-fixed-rate swaps outstanding in relation to its variable-rate debt. The mark-to-market on the swaps was negative $2.8 million at April 30, 2014. Springpoint has no collateral requirement posting related to its swaps.

Springpoint's capital spending has averaged approximately 75.9% of depreciation over the last four years and Fitch expects this level of spending to continue, with Springpoint funding mostly routine capital projects and apartment refurbishments. Springpoint's average age of plant is slightly elevated at 14.3 years.

The largest project Springpoint is contemplating is a potential $20 million to $25 million skilled nursing expansion on its Monroe Campus, which would be financed outside the OG. The project is in a preliminary phase and Fitch expects more clarity on it by the next rating cycle. However, Springpoint has very limited debt capacity at the current rating level.

NON-OG UPDATE

Outside the OG, Springpoint owns three other CCRCs, as well as 18 affordable housing projects. Springpoint's newest CCRC, Winchester Gardens (Winchester), a type-B CCRC located in Maplewood, NJ, which affiliated with Springpoint in July 2013, continues to do well. Fitch upgraded Winchester's general revenue bonds to 'BBB' from 'BBB-' in February 2014, and occupancy was 88% as of June 30, 2014.

The new building at Atrium at Navesink Harbor continues to fill, with ILU occupancy at 70%, and 18 units left to be sold. Springpoint management reported that fill-up is slightly behind the original projections and anticipates the campus to have positive cash flow by late 2015. ILU occupancy on the rest of the Navesink campus was good at 85% and the health center occupancy was solid at 89%. Fitch notes as a credit positive the progress made at filling the Atrium. Building and financing were a credit concern because of their potential financial drain on the OG and as a distraction from OG operations. Springpoint continues to provide a guarantee of up to $5 million on the Atrium for the life of the bonds associated with the funding of the expansion project.

Historically, Springpoint has transferred funds or provided loan guarantees to non-obligated group affiliates, which has been scaled back in recent years. Fitch continues to monitor the level of support to non-obligated group entities and the impact to the OG's performance.

DISCLOSURE

Springpoint provides quarterly utilization and financial information to bondholders upon request.

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

Applicable Criteria and Related Research:

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=842014

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, Inc.

Primary Analyst

Gary Sokolow, +1-212-908-9186

Director

33 Whitehall St.

New York, NY 10004

or

Secondary Analyst

Dmitry Feofilaktov, +1-212-908-0345

Analyst

or

Committee Chairperson

James 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


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