TEXT-Fitch affirms Ridgecrest Village, Iowa revs at 'BBB-'

Wed Jan 9, 2013 11:54am EST

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Jan 9 - Fitch Ratings has affirmed the 'BBB-' rating on the following bonds
issued on behalf of Ridgecrest Village (Ridgecrest):

--$13.82 million Scott County, IA revenue refunding bonds, series 2006;
--$5.95 million Scott County, IA revenue refunding bonds, series 2004.

The Rating Outlook is Stable.

SECURITY
The bonds are secured by a pledge of gross revenues, a mortgage on real and
personal property subject to permitted encumbrances, and a debt service reserve
fund.

KEY RATING DRIVERS

RETURN TO EXPECTED FINANCIAL PERFORMANCE: After several years of weaker debt
service coverage, financial performance returned to levels more consistent for
the rating level. Profitability and debt service coverage improved in fiscal
2012 primarily due to improved assisted living (ALU) and skilled nursing (SNF)
occupancy, increased private pay in the ALU and improved entrance fee receipts.
Net operating margin adjusted increased to 17.5% while maximum annual debt
service (MADS) coverage increased to 1.5 times (x) in fiscal 2012.

ADEQUATE LIQUIDITY METRICS: Liquidity remains modest for the 'BBB-' rating with
48.4% cash to debt and 4.9x cushion ratio. However, modest liquidity metrics are
partially mitigated by Ridgecrest's conservative investment portfolio and 100%
fixed rate debt portfolio.

LOW ILU OCCUPANCY: Independent Living (ILU) occupancy remains relatively low,
averaging 86% since fiscal 2008 and equal to 84.5% at Sept. 30, 2012 reflecting
challenges with marketing units located away from the center of Ridgecrest's
campus. In addition, Ridgecrest was challenged with higher than normal turnover
in fiscal 2012.

SOLID MARKET POSITION: Ridgecrest has a good competitive position as the only
Type 'A' continuing care retirement community (CCRC) in its primary service area
(PSA) and with entrance fees that are well priced relative to the local housing
market.

CREDIT PROFILE

The rating affirmation reflects Ridgecrest's return to operating performance in
fiscal 2012 that is more consistent for the rating level, increased debt service
coverage, and favorable market position. Fitch's primary credit concerns
continue to include Ridgecrest's challenge in improving ILU occupancy and modest
liquidity metrics.

Operating performance improved in fiscal 2012 with net operating margin adjusted
increasing to 17.5% from 11.3% in fiscal 2011. Additionally, operating ratio
declined to 98.8% in fiscal 2012 from 105.8% in fiscal 2011. The improvement was
primarily due to increased occupancy in Ridgecrest's ALU and SNF, increased
private pay in ALU and improved entrance fee generation. Net entrance fee
generation increased to $1.6 million in fiscal 2012 from $1.1 million in fiscal
2011. The improved operations strengthened MADS coverage to 1.5x in fiscal 2012
which is adequate for the rating category. This performance is more in line for
the rating level after several years of weaker debt service coverage. Fitch
expects this level of performance to be sustained.

Liquidity is modest for a Type 'A' CCRC, but related concerns are mitigated by
Ridgecrest's conservative balance sheet. Unrestricted cash and investments was
$9.7 million at Sept. 30, 2012 compared to $10.2 million at fiscal year-end 2012
(June 30). While days cash on hand remains light for the rating category at
287.3 days, liquidity relative to debt remains adequate for the 'BBB-' rating
with 48.4% cash to debt and 4.9x cushion ratio.

Lending further strength to Ridgecrest's liquidity is its overall conservative
financial profile with all fixed-rate debt, no swaps, and a relatively
conservative investment portfolio.

Ridgecrest's debt position remains elevated as evidenced by MADS equal to 14.5%
of revenue and 70% adjusted debt to capitalization. Capital plans over the next
few years are manageable and are expected to be funded out of cash flow. No new
debt is expected to be issued in the next 24 months.

Fitch's primary credit concern continues to be Ridgecrest's continued low ILU
occupancy levels. ILU occupancy averaged 86.1% since fiscal 2008 and equaled
84.5% at Sept. 30, 2012. Management attributes the lower ILU occupancy levels
since fiscal 2008 to challenges marketing certain units located away from the
center of campus. Ridgecrest upgraded the units, added amenities to the
building, including a new community room and increased the marketing emphasis on
the units to increase demand. Additionally, ILU occupancy was negatively
impacted in fiscal 2012 by a higher than average number of transfers to ALU,
which offset the benefit from an above average number of move-ins. Despite the
improved operations in fiscal 2012, Fitch is concerned that continued low ILU
occupancy could negatively impact operations going forward, similar to the
negative impact in fiscal 2011.

Management's efforts to increase occupancy should be aided by Ridgecrest's
favorable market position. Ridgecrest remains the only Type 'A' life care CCRC
in the service area and there is limited competition in the broader area.

The Stable Outlook reflects Fitch's belief that occupancy rates and entrance fee
generation will remain sufficient to maintain debt service coverage while
liquidity metrics remain stable. Given Ridgecrest's weaker financial performance
in the prior three years, Fitch expects the financial performance exhibited in
fiscal 2012 to be sustained.

Located in Davenport, Iowa, Ridgecrest Village is a Type 'A' CCRC with 157
independent living units, 60 assisted living units (including 15 Alzheimer's
units), and 137 skilled nursing beds. Total revenues equaled $13.6 million in
fiscal 2012. Ridgecrest covenants to provide annual disclosure within 150 days
of the end of each fiscal year and quarterly disclosure within 60 days of the
end of each fiscal quarter. Disclosure is provided through the Municipal
Securities Rulemaking Board's EMMA system.

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.

Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 12, 2012);
--'Not-for-Profit Continuing Care Retirement Communities Rating Criteria' (July
12, 2012).

Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
Not-for-Profit Continuing Care Retirement Communities Rating Criteria
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