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.
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.
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
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
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