NEW YORK - Fitch Ratings said it revised the rating outlook on Willow Valley Retirement Communities (WVRC) to stable from negative.
Fitch also affirmed at A-minus approximately $23 million of Lancaster County Hospital Authority (Willow Valley Retirement Communities Project) health center revenue bonds series 2001; approximately $6.6 million of Lancaster County Hospital Authority (Willow Valley Lakes Manor Project) health center revenue bonds series 1998A; and approximately $3.4 million of Lancaster Industrial Development Authority (Willow Valley Manor Project) health center revenue refunding bonds series 1997.
Fitch was not asked to rate the series 2009A, B, and C bonds.
WVRC has addressed the concerns surrounding its debt profile for the near- to medium-term with the issuance of $60 million of variable rate demand bonds supported by a three-year letter of credit from PNC Bank (rated A-plus/F1 by Fitch; replaced a $50 million line of credit that was set to expire in January 2010). However, the capital structure is still viewed as aggressive and will remain an ongoing concern due to the sole counterparty exposure and put risk.
WVRC has improved its operating performance, narrowing the operating loss (excluding investment income) from $3.4 million in fiscal 2008 to a loss of only $360,000 in fiscal 2009 ended Dec. 31 (unaudited). The excess margin, although once again positive, remains depressed compared to historical levels due to low investment returns.
Liquidity metrics improved year over year due to an increase in unrestricted cash and investments to $73.7 million, a $7 million increase over the prior year. Although, liquidity metrics remain relatively low compared to the category medians, this is somewhat offset by the significant reinvestment in the facilities, as demonstrated by an average capital expenditure of 135% of depreciation over the last five years, as well as an average age of plant of 8.6 years.
Independent living occupancies continues to lag at the two older facilities, Manor and Lakes Manor. Occupancy at the newer facilities, Manor North and Spring Run, remain strong.
The outlook revision reflects WVRC's restructuring of its debt profile. WVRC has refunded a $50 million line of credit from PNC Bank that was set to expire in January 2010, with $60 million of variable rate demand bonds supported by a three-year letter of credit from PNC Bank.
