Fitch Affirms RiverWoods at Exeter (NH) at 'A-'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'A-' rating on implied general revenue obligations of RiverWoods at Exeter, NH (RiverWoods). RiverWoods has $60 million of debt that is directly placed with banks and not rated by Fitch.

The Rating Outlook is Stable.

KEY RATING DRIVERS

STABLE CREDIT PROFILE: RiverWoods maintains a very steady credit profile characterized by high independent living (IL) occupancy, consistent operating metrics, investment in its plant, and good revenue only maximum annual debt service (MADS) coverage.

CONSISTENT REVENUE ONLY COVERAGE: Revenue only debt service coverage averaged 1.1x over the last four audited years, which is good for a Type 'A' life care contract facility. Entrance fees have been volatile due to the flow of turnovers and the timing on refunds and move ins. In addition, RiverWoods' newest campus, The Boulders, which was opened in 2010 has, as expected, more limited turnover. However, MADS coverage with entrance fees has remained at or above 2x, even in the thinner entrance fee years, while higher than normal entrance fees years produce coverage above 3x.

AGGRESSIVE DEBT STRUCTURE: All of RiverWoods' $60 million in long-term debt is variable rate bank qualified bonds that are placed with two separate banks, along with fixed payor swaps that hedge the variable rate exposure. RiverWoods has 130% cash to debt, which mitigates some of the credit concerns of the debt structure.

GOOD SERVICE AREA CHARACTERISTICS: High occupancy levels are also supported by the market area's solid demographics and New Hampshire's status as an attractive retirement destination due in large part to the absence of state sales and capital gains taxes. In addition, Fitch views positively RiverWoods' ability to draw out-of-state residents, who currently make up approximately 45% of RiverWoods' residents.

ASSET TRANSFERS: RiverWoods transferred $5 million in funds to its parent organization, The Riverwoods Group, in fiscal 2014. Bank documents cap RiverWoods' ability to transfer funds to $8 million over any three calendar years. RiverWoods expects to continue making asset transfers, which Fitch believes is manageable at the current rating level given the balance sheet resources and sufficient cash flow.

RATING SENSITIVITIES

CONTINUED OPERATING STABILITY: Fitch expects RiverWoods at Exeter's high independent living occupancy to be maintained which should support good cash flow and debt service coverage.

CREDIT PROFILE

Located in the Exeter, NH, RiverWoods at Exeter is a type-A continuing care retirement community with 393 IL units, 71 assisted living units (ALUs) and 78 skilled nursing facility units (SNFs) across three campuses, The Woods, The Ridge, and The Boulders. In fiscal 2016 (June 30 year end), RiverWoods reported total operating revenues of $35.7 million.

SOLID OPERATIONS

RiverWoods' occupancy remains robust, averaging above 95% and generating consistent net entrance fees and operating cash flow. In fiscal year 2016 (FY16), RiverWoods produced a 94.4% operating ratio and 30.5% net operating margin-adjusted, relative to Fitch's 'A' category medians of 94% and 22.2%. The strong performance was supported by high IL occupancy and steady occupancy rates within assisted living and skilled nursing, as well as good expense management.

Financial results translated to a solid MADS coverage of 3.9x including entrance fees and 0.9x by revenue-only, which compare well to Fitch's 'A' category medians of 3.1x and 1.5x, respectively. Riverwoods' covenant calculation, which uses a lower MADS figure, showed coverage of 4.4x including entrance fees and 1.2x on a revenue only basis in FY2015.

BALANCE SHEET GROWTH

RiverWoods' liquidity position at year end FY16 equaled 919 days cash on hand (DCOH) and 130.3% cash to debt, compared to Fitch's 'A' category medians of 681 days and 125.1%. These are all improved over FY15's 832 DCOH, and 112.7% cash to debt.

In December 2013, Riverwoods made a $5 million net asset transfer to The RiverWoods Group, and additional transfers and continued capital spending should keep further growth in unrestricted cash and investments muted.

Debt Profile/Capital Spending

All of RiverWoods' $60 million in long-term debt is variable rate bank qualified bonds that are placed with two separate banks. One of the bank qualified bonds is with TD Bank ($30.3 million), which includes a 15-year put provision (April 1, 2025), and the second is with People's United Bank ($29.7 million), which includes a 15-year mandatory tender (April 1, 2030). Fitch uses MADS of $3.7 million, which incorporates a 24-26 year amortization on the bonds. RiverWoods has very strong liquidity relative to debt which offsets some concerns regarding the debt structure.

RiverWoods has three fixed payor swaps to hedge the variable rate exposure, with two separate counterparties. The mark to market as of Aug. 31, 2016, was a negative $1.8 million. There are no collateral posting requirements for the swaps.

In 2015, RiverWoods finished a $7 million refurbishment of its oldest campus, The Woods, and is now planning for a similar project at The Ridge. Fitch believes RiverWoods has the cash flow and balance sheet strength to fund the project at the current rating level.

DISCLOSURE

RiverWoods does not disclose publically as all of RiverWoods' debt is currently privately held.

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

Applicable Criteria

Not-for-Profit Continuing Care Retirement Communities Rating Criteria (pub. 04 Aug 2015)

https://www.fitchratings.com/site/re/868824

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/site/re/750012

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013957

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013957

Endorsement Policy

https://www.fitchratings.com/regulatory

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Source: Fitch Ratings

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