TEXT-Fitch ups Tabor Hills (IL) revs to 'BBB'; outlook stable

(The following statement was released by the rating agency)

Sept 11 - Fitch Ratings has upgraded the rating on approximately $20.9 million of Illinois Finance Authority's revenue bonds, series 2006, issued on behalf of Tabor Hills to 'BBB' from 'BBB-'.

The Rating Outlook is revised to Stable from Positive.

SECURITY

The bonds are secured by a pledge of the gross revenues of the obligated group, a mortgage on the facility and a debt service reserve fund.

KEY RATING DRIVERS

SUSTAINED IMPROVEMENT IN FINANCIAL PROFILE: The rating upgrade to 'BBB' from 'BBB-' reflects Tabor Hills' continued strong financial performance, especially ongoing improvement in liquidity indicators.

GOOD OPERATING PROFITABILITY: Operating profitability over the last few fiscal years has met Fitch's 'BBB' medians. Further, Tabor Hills continues to generate good metrics despite a challenging operating environment and the addition of a Medicaid bed tax in Illinois in 2011.

LOW DEBT BURDEN: In fiscal 2011 (September 30 year-end), maximum annual debt service (MADS) represented just 7.5% of total revenue compared to the 'BBB' category median of 13.6%. MADS coverage was in line with the 'BBB' category median at 2x in fiscal 2011, and revenue-only coverage of 1.7x during the same time period well exceeds the 'BBB' category median of 0.8x.

STRONG DEMAND: Occupancy at Tabor Hills is a credit strength with average occupancy (2009-2011) of independent living units (ILUs) at 92% and assisted living units (ALUs) at 87%. Skilled nursing facility (SNF) bed occupancy has fluctuated somewhat over the last three years, but is now strong at 90% at June 30, 2012.

HIGH PROPORTION OF SKILLED BEDS: The large proportion of revenues generated from skilled nursing services and its exposure to Medicaid is a credit concern as it subjects the facility to greater operating risk due to high attrition and reimbursement pressures from governmental payors.

CREDIT PROFILE

Tabor Hills' steadily growing balance sheet coupled with its consistently solid profitability and debt service coverage has led to an overall credit profile that is in line with the 'BBB' rating.

Tabor Hills has been building its cash position over the last few years, and liquidity metrics, except for days cash on hand, meet or exceed 'BBB' category medians. At June 30, 2012, Tabor Hills' unrestricted cash and investments totaled $12.8 million, which equates to 61.2% cash to debt and 8.6x cushion ratio, comparing favorably to the respective 'BBB' category medians of 51% and 5.9x. Days cash on hand at June 30, 2012 of 260.5 is below the 'BBB' category median of 361.4 days, mostly a function of its type-C contract, but an improvement from 232 days at fiscal 2011 year end.

Tabor Hills' historical operating profitability has been consistent over the past few years. In fiscal 2011, operating ratio of 94.2% and net operating margin of 10.9% were both favorable compared to the respective 'BBB' category median of 97.4% and 9.9%. Through the 9-months ended June 30, 2012, operating profitability indicators were down slightly because of a newly imposed Medicaid bed tax in Illinois, which added about $400,000 in additional expense.

Tabor Hills' debt burden is manageable with all fixed-rate debt and no swaps. Debt service coverage ratio of 2x was in line with the 'BBB' category in fiscal 2011 and coverage of 1.7x through the nine months ended July 30 exceeds the 'BBB' category median of 2x. Furthermore, MADS is a light 7.4% of revenues through the 10-month interim and compares favorably to the 'BBB' category median of 12.8%.

Despite competition in the service area, Tabor Hills benefits from its attractive pricing levels for entrance and monthly fees, which are lower than those of the two competing continuing care retirement communities (CCRCs) in the service area, resulting in solid occupancy with ILU occupancy at 92% in fiscal 2011 and 91% at June 30, 2012. Occupancy in the SNF has improved to 90% at June 30, 2012 from 78% in fiscal 2011.

A credit concern is Tabor Hills' high proportion of SNFs relative to ILUs with approximately two nursing beds for every ILU. This subjects Tabor Hills to more inherent risk from reimbursement changes and higher turnover than a typical CCRC. However, Tabor Hills applied for 'distinct part' designation under Medicaid, which would limit Medicaid eligible beds to 60 of its licensed 211 SNF beds. Management has continuously demonstrated its ability to effectively balance occupancy and payor mix and this will help management to further control the payor mix in its SNF, which will offset some risk from its exposure to Medicaid.

Tabor Hills is located in Naperville, IL, a suburb of Chicago, approximately 28 miles west of the city and has 104 patio town homes, 211 skilled nursing beds, and 95 supportive living units. Total operating revenue in fiscal 2011 was $19.5 million. Tabor Hills covenants to provide audited financial information to the Master Trustee, the Illinois Finance Authority and the Bond Trustee within 120 days of fiscal year end, and quarterly financial information including a balance sheet, income statement and cash flow statement within 45 days of each quarter end. Tabor Hills also posts audited, monthly and operating information on EMMA.