Fitch Rates Lutheran Retirement Ministries of Alamance County’s (NC) Revs ‘BBB+’; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BBB+' rating to the following bonds:

--$29.6 million North Carolina Medical Care Commission Health Care Facilities revenue refunding bonds, series 2009 (Lutheran Retirement Ministries of Alamance County d/b/a Twin Lakes Retirement Community);

--$5.5 million North Carolina Medical Care Commission Health Care Facilities revenue refunding bonds, series 2010 (Lutheran Retirement Ministries of Alamance County d/b/a Twin Lakes Retirement Community).

The Rating Outlook is Stable.

Both the series 2009 and 2010 bonds have been directly placed with BB&T Corporation (rated 'A+/F1' with a Negative Outlook by Fitch) as bank qualified bonds.

RATING RATIONALE:

--Twin Lakes has demonstrated healthy historical operating profitability as the organization's net operating margin has averaged 14.2% over the past four fiscal years, which compares favorably against Fitch's 'BBB' category median of 6.8%.

--Utilization has been strong over the past several years and was 95.7% for the independent living units (ILUs) in fiscal 2010.

--As of Sept. 30, 2010 (draft audit) Twin Lakes had approximately $22.4 million in unrestricted cash and investments, which equated to approximately 505 days cash on hand, a 7 times (x) cushion ratio, and 67.3% cash to debt, which exceeds the respective 'BBB' medians.

--Competition in the service area remains Fitch's primary credit concern as Twin Lakes has five other Continuing Care Retirement Communities (CCRCs) as direct competitors.

--Twin Lakes has an expansive physical plant with a low average age of plant of 9.4 years.

--Fitch views Twin Lakes' ability to service maximum annual debt service (MADS) coverage favorably as coverage has averaged 2.4x over the past four fiscal years, which compares well against the category median of 1.5x.

-The organization has reduced its capital structure risk as Twin Lakes moved from a letter of credit backed variable demand bonds to five-year bank qualified bonds, thereby, eliminating put, remarketing and bank downgrade risk.

KEY RATING DRIVER:

--Ability for Twin Lakes to maintain high occupancy rates across all levels of care.

--Maintenance of current financial profile.

SECURITY:

The bonds are secured by gross revenues and first mortgage lien.

CREDIT SUMMARY:

Twin Lakes operates a type-C continuing care retirement community located in Burlington, NC (approximately 35 miles west of Durham, NC) consisting of 382 ILUs, 36 assisted living units,104 skilled nursing beds and 32 memory care units. In the fiscal year ended Sept. 30, 2010 (draft audit), Twin Lakes had total revenues of approximately $21.6 million.

The rating is supported by strong historical operating profitability, robust utilization trends, and solid liquidity. Twin Lakes' net operating margin and net operating margin-adjusted through the 12 months ended Sept. 30, 2010 were 16.1% and 27.7%, respectively, which compared favorably against Fitch's 2009 median of 6.8% and 18.0%. Over the past four years, ILU occupancy has historically been above 95% which is a primary credit strength, with September 2010 year-to-date occupancy in independent living at 95.7%. Twin Lakes' assisted living was 79.2%, skilled nursing at 83.5% and memory care at 95.8%. Management stated that the organization's skilled nursing census has softened somewhat since the opening of memory care and is focusing on backfilling volume. However, with the adjusted volume, management has done good job at flexing its expenses associated with the decreased occupancy. Day's cash on hand (DCOH) of 504.8 days through the 2010 year-end period exceeded Fitch's 'BBB' category median of 372.7 days. Also viewed favorably by Fitch are Twin Lakes' expansive, attractive, and well-kept campus, long operating history, excellent disclosure and sound management practices.

Although Fitch's main credit concern is the competitive operating environment with five CCRC competitors, Twin Lakes' history in the marketplace and continued high ILU occupancy help offset this risk. In Fitch's last review (Sept. 28, 2009), a Negative Rating Outlook was assigned primarily due to the immediate LOC put risk associated with Twin Lakes formerly outstanding series 2007 bonds. Fitch no longer has this concern as the series 2009 and series 2010 bonds do not have any put-option until 2015.

The Stable Rating Outlook reflects Fitch's belief that Twin Lakes will continue to maintain profitability and liquidity, while demonstrating strong utilization trends within its ILUs.

DISCLOSURE:

Fitch views the disclosure requirements positively due to the content of the information required. Twin Lakes covenants to provide audits to the EMMA system within 120 days of each fiscal year's end, quarterly statements within 45 days of quarter's end (including occupancy statistics), annual budgets and management letters within 120 days of fiscal year's end, and any material events. Fitch views the disclosure requirements imposed by the State of North Carolina Department of Insurance favorably and believes the content represents an industry best practice.

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

Applicable Criteria and Related Research:

'Revenue-Supported Rating Criteria', dated 08 Oct 2010.

'Rating Guidelines for Nonprofit Continuing Care Retirement Communities', dated 15 Dec 2008.

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=564565

Rating Guidelines for Nonprofit Continuing Care Retirement Communities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=40171

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Fitch Ratings
Primary AnalystMichael Burger, +1-212-908-0555
Associate Director
One State Street
New York, NY 10014
or
Secondary AnalystGary Sokolow, +1-212-908-9186
Director
or
Committee ChairpersonJim LeBuhn, +1-312-368-2059
Senior Director
or
Media Relations:Cindy Stoller, +1-212-908-0526
Email: [email protected]

Source: Fitch Ratings