TEXT-Fitch upgrades Asbury Communities, Md. revs to 'BBB'
Dec 4 - Fitch Ratings has upgraded to 'BBB' from 'BBB-' the ratings on the following Gaithersburg, MD issued on behalf of the Maryland Obligated Group of Asbury Communities (Asbury-MD): --$84,735,000 refunding revenue bonds, series 2006A; --$44,245,000 refunding revenue bonds, series 2009B; --$16,000,000 revenue bonds, series 2009A. The Rating Outlook is Stable. SECURITY The bonds are secured by a pledge of gross revenues, a mortgage, and a funded debt service reserve. KEY RATING DRIVERS CONSISTENT OPERATING PERFORMANCE: Asbury-MD continues to generate consistent profitability and coverage metrics that exceed Fitch 'BBB' medians. Since 2009, annual net operating margin and net operating margin-adjusted have exceeded 11.4% and 23.6%, respectively, resulting in strong coverage of maximum annual debt service (including turnover entrance fees) of 2.3 times (x) and 2.7x in fiscal 2010 and 2011, respectively. SOLID OCCUPANCY: Occupancy remains solid at both Asbury Methodist Village (AMV) and Asbury Solomons (A-S). Through the nine months ended Sept. 30, 2012 aggregate occupancy was 90.2% in ILUs, 92.4% in ALUs, and 92.8% in the SNFs. REDUCED RISK FROM AFFILIATES: The growing liquidity position at the non-obligated parent, Asbury Communities (ACOMM), combined with the stable operating performance at the non-obligated affiliate, Asbury Pennsylvania Obligated Group (Asbury-PA), has lessened the potential for increased transfers from Asbury-MD to ACOMM. LIGHT LIQUIDITY: Although improved, Asbury-MD's liquidity metrics remain weak relative to 'BBB' category medians. However, the corporation benefits from unconditional and unlimited support from ACOMM which held roughly $26.3 million of unrestricted cash and investment at Sept. 30, 2012 and is available for support of both the Asbury-MD and Asbury-PA obligated groups. CASH TRANSFERS REMAIN A CONCERN: One of Fitch's key credit concerns continues to be the cash transfers out of Asbury-MD to ACOMM which are expected to continue at approximately $3 million per year. CREDIT PROFILE The rating upgrade to 'BBB' reflects the solid and operating performance at Asbury-MD combined with the improved financial position and performance at the related but non-obligated affiliates, ACOMM and Asbury-PA. Asbury-MD operating performance has been solid and consistent driven primarily by strong demand and occupancy. Through the nine months ended Sept. 30, 2012 occupancy at Asbury-MD was 90.2% in ILUs, 92.4% in ALUs, and 92.8% in the SNFs. Further, the 43 unit independent living unit expansion as Asbury Methodist Village was completed as planned and under budget. Management expects to have the new Courtyard units 88% occupied by year-end. Asbury-MD's profitability indicators have been stable and consistent over the last three fiscal years (2009-2011) with net operating margins (NOM) ranging between 10.7% and 12% and net operating margins-adjusted (NOM-adjusted) of between 21.5% and 26.4%. Profitability through 9 month interim period softened slightly (9.8% NOM and 20.1% NOM-adjusted) due to reduced Medicare rates and increased employee benefit costs. Solid operating performance and turnover entrance fee receipts has generated strong coverage of MADS of 2.3x in fiscal 2010, 2.7x in fiscal 2011 and 1.7x through the 9 months ended Sept. 30, 2012. Asbury-MD's liquidity metrics are weak compared to Fitch's 'BBB' category medians and remain a credit concern. As of Sept. 30 2012, Asbury-MD total unrestricted cash and investments of $41.6 million which equates to 189.0 days of cash on hand (DCOH), 30.4% cash to debt, and a 4.5x cushion ratio, which are weaker than the respective 'BBB' category medians of 369.0 DCOH, 50.9% cash to debt, and a 6.6x cushion ratio. However, Fitch notes that bondholders benefit from the unconditional and unlimited support from ACOMM which held roughly $26.3 million of unrestricted cash and investment at Sept. 30, 2012, which is available for support of both the Asbury-MD and Asbury-PA obligated groups. Unrestricted cash and investment at ACOMM has shown year over year growth from $16.1 million at Dec. 31, 2009. Furthermore, the fixed rate capital structure at both Asbury-MD and Asbury-PA serves to mitigate the risks of light liquidity. Under its bond documents, Asbury-MD is allowed to transfer funds to the ACOMM which can then be distributed to either entity (MD or PA). Transfers have moderated over last three-years to less than $3 million annually. Management projects future transfers not to exceed $3 million. Although certain liquidity and debt service coverage tests have to be met before a transfer can be made, the ability to transfer cash to the parent remains a credit concern. While Asbury-MD remains indirectly exposed to the operating performance of Asbury-PA through the cash transfer to ACOMM, the stable operating trend at Asbury-PA has lessened Fitch's concern about future support needed from Asbury-MD through the transfer of assets. Through the nine interim period ended Sept. 30, 2012 Asbury-PA generated a 14% net operating margin, 156 DCOH, and 1.5x debt service coverage, which is an improvement over prior years. The Stable Outlook reflects Fitch's expectation that Asbury-MD will maintain its solid operating performance. Fitch expects that liquidity position and metrics at Asbury-MD should improve over time given the more stable transfers projected by management. Asbury-MD has two swap agreements outstanding which continue to partially hedge against non-obligated VRDBs. The counterparty cannot terminate either swap agreement, which currently have a combined negative MTM value of approximately $31 million with no collateral posting requirements. The Maryland Obligated Group (Asbury-MD) consists of Asbury Methodist Village (AMV) and Asbury-Solomons Island (A-S). Asbury-MD operates a total of 1,127 ILUs, 157 ALUs and 305 SNFs. Operating revenues were $97.9 million in 2011. Asbury-MD has covenanted to provide annual audits and quarterly unaudited financial information through EMMA, and also provides voluntary quarterly disclosure calls for investors. Disclosure to Fitch has been very good to date with quarterly disclosure that includes detailed financial statements, utilization statistics, and a brief management discussion and analysis section. Further, management has been very approachable and accessible to Fitch during periodic reviews. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. This action was informed by the sources of information identified in Fitch's Revenue-Supported Rating Criteria. Applicable Criteria and Related Research: --'Revenue-Supported Rating Criteria', dated June 20, 2011; --'Rating Guidelines for Nonprofit Continuing Care Retirement Communities' dated July 26, 2011. Applicable Criteria and Related Research: Rating Guidelines for Nonprofit Continuing Care Retirement Communities Revenue-Supported Rating Criteria
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