Fitch Affirms Milwaukee Catholic Home's (Wisconsin) Revs at 'A-'; Outlook Stable

Fitch Affirms Milwaukee Catholic Home's (Wisconsin) Revs at 'A-'; Outlook Stable

As part of its on-going surveillance process, Fitch Ratings affirms the 'A-' rating on the following Wisconsin Health and Educational Facilities Authority refunding revenue bonds issued on behalf of Milwaukee Catholic Home (MCH):

--$12.9 million series 2006.

The Rating Outlook is Stable.

KEY RATING DRIVERS:

--Strong Liquidity: MCH's primary credit strength is its strong liquidity position with days cash on hand (DCOH), cushion and cash-to-debt ratios at March 31, 2011 that exceed the 2010 'A' category medians.

--Solid Profitability: Operating ratio and net operating margin have been consistently favorable to Fitch's 'A' rating category medians; however, volatility in investment earnings has pressured the bottom line and debt service coverage.

--Depressed Occupancy: Occupancy across the continuum continues to run below 90% reflecting the recession and weak housing market.

--Improved Medicare Census: MCH benefits from its location to and referral relationship with Columbia-St Mary's Hospital (part of 'AA+' rated Ascension Health) which has resulted in growing Medicare census in the skilled nursing facility (SNF).

SECURITY:

A gross revenue pledge, a mortgage interest in property and a debt service reserve fund.

CREDIT PROFILE

The rating affirmation at 'A-' reflects MCH's strong liquidity position, solid operating profitability and close relationship with Columbia-St. Mary's Hospital. At March 31, 2011, MCH's level of unrestricted cash and investments improved to $22.2 million from $21.4 million and $19.1 million at fiscal year end (FYE) 2010 and 2009, respectively. Thus, MCH's liquidity ratios including DCOH (538.3), cushion (18.3 times [x]) and cash-to-debt (172.9%) exceed the respective 2010 'A' category medians of 528.1, 14.1x and 109.5% and provides a sizable cushion against operating volatility.

MCH's historical operating profitability is consistent with an 'A' category rating. MCH's operating ratios in fiscal 2008, 2009 and 2010 were 90.9%, 91.9% and 89.7%, respectively, which are lower than 2010 'A' category median of 94.1% indicating a lack of dependence on entrance fee turnovers. Net operating margin improved to 11.5% in 2010 from 9% and 9.2% in 2009 and 2008, respectively reflecting better Medicare census in the SNF. In 2010, all beds in the SNF were Medicare certified and a 30 bed transitional care unit was created. MCH's excellent care scores and location adjacent to Columbia-St. Mary's Hospital (part of Ascension Health, revenue bonds rated 'AA+' by Fitch) has generated steady referral volume of Medicare residents. MCH's modest debt burden and solid operating profitability has generated strong historical coverage of MADS. Except for fiscal 2009, debt service coverage has ranged between 1.8x and 3.7x since 2007. In 2009, realized losses on investments caused MCH to violate its debt service coverage requirement. Management engaged a consultant as required under the bond documents and rebalanced its investment portfolio to reduce volatility. Excluding realized investment losses, coverage of MADS in 2009 was 1.69x. In 2010, MADS coverage was 2.3x.

Fitch's primary concern relates to MCH's depressed occupancy levels reflecting the effects of the recession and the continued weakness in home values. While management has done a very good job controlling expenses and managing nursing home census continued erosion could negatively affect profitability. While MCH's service area is very competitive, Fitch believes MCH's lower entrance fee and monthly service fee pricing relative to those competitors provides a competitive advantage in the current operating environment.

The Stable Outlook reflects Fitch's expectation that MCH will continue to generate solid operating results in spite of weaker occupancy. MCH's strong liquidity position provides substantial cushion to absorb a temporary decline in profitability and occupancy. Currently, management has no plans for additional debt.

MCH's debt structure is all fixed rate. MCH is not a counter-party to any swap agreements.

MCH is a type-C continuing care retirement community (CCRC) facility located just north of downtown Milwaukee, WI. The facility includes 121 independent living (IL) apartments, 29 assisted living units (ALUs), a 122 bed SNF and a 30 person intergenerational adult day-care. Under its Continuing Disclosure Agreement, MCH covenants to provide audited financial statements and utilization statistics direct to the EMMA and requesting bondholders within 150 days of each fiscal year-end and quarterly interim financial statements and utilizations within 45 days of each fiscal quarter-end.

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

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria', dated Oct. 8, 2010;

--'Nonprofit Hospitals and Health Systems Rating Criteria', Dec. 29, 2009.

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

Nonprofit Hospitals and Health Systems Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493186

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Fitch Ratings
Primary Analyst
Jim LeBuhn, +1-312-368-2059
Senior Director
Fitch, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Adam Kates, +1-312-368-3180
Director
or
Committee Chairperson
Emily Wong, +1-212-908-0651
Senior Director
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Media Relations
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cindy.stoller@fitchratings.com