Standard & Poor’s last week lowered its rating to BB from BBB-minus on La Verne, Calif.’s $46.3 million of debt issued for Brethren Hillcrest Homes. The outlook is negative.

“The rating action is based on an operating profile that has been affected by construction delays, significant cost overruns, and related vacancy issues, all of which have led to very poor liquidity,” said Standard & Poor’s credit analyst Keith Dickinson. “While legal disputes arising from the construction project appear to be heading toward a positive resolution, construction delays and affiliation considerations have affected Hillcrest’s plans to refinance debt and obtain cash for reimbursement of certain capital expenditures totaling approximately $4.5 million.”

Hillcrest’s operating performance dropped to a loss of $108,000 in fiscal 2007 from an operating gain of $983,000 in fiscal 2006.

Fiscal 2007 saw increases in interest expense, depreciation expense, and other items, which resulted in an increase in total operating expenses of almost 21% over fiscal 2006.

Meanwhile, total revenues for fiscal 2007 increased by 12%. The interim period ending March 31 reflects total operating revenues of $13.6 million versus total operating expenses of $12.9 million, a net gain of $738,000.

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