NEW YORK - (Business Wire) Fitch Ratings affirms the 'BB+' rating on approximately $32.38 million Michigan State Hospital Finance Authority revenue and refunding bonds series 2005 (Presbyterian Villages of Michigan Obligated Group). The Rating Outlook is revised to Stable from Negative.
The rating affirmation at 'BB+' reflects Presbyterian Villages of Michigan's (PVM) adequate debt service coverage, light but consistent liquidity and solid occupancy across all levels of care. Historical coverage of maximum annual debt service (MADS) has improved to 1.6 times (x) in fiscal 2007 from 1.5x and 1.4x in fiscal 2006 and 2005, respectively. Fitch views PVM's historical debt service coverage as adequate reflecting the corporation's rental contract type and the moderate income level of its market. Unrestricted cash and investments totaled $11.2 million at June 30, 2008 which translates to 126 days cash on hand (DCOH) and 35% cash to debt. Although PVM's DCOH ratio has weakened from 143 at Dec. 31, 2006, the level of unrestricted cash at June 30, 2008 is roughly $600,000 lower as compared to PVM's level of restricted cash and investments at Dec. 31, 2006. Aggregate occupancy has been stable since fiscal 2006 across all levels of care. Occupancy in the independent living units and assisted living units has ranged between 85%-90% while occupancy in the skilled nursing facilities has been stable at 95%.
The Outlook revision to Stable from Negative reflects management's success at maintaining occupancy and controlling expense growth in the difficult southeast Michigan operating environment. Historically, PVM has depended on investment income and philanthropic contributions to supplement operating losses and achieve debt service coverage. Since fiscal 2004 investment income and contributions have averaged roughly $3.2 million annually. Fitch expects that any material decrease in investment income and/or contributions will be recouped through tighter expense control and improved operations to maintain debt service coverage in line with historical performance.
Headquartered in Southfield, MI, the PVM Obligated Group consists of three rental continuing care retirement communities located in Redford, Westland and Chesterfield Township, MI. Currently, the Obligated Group's three campuses total 328 independent rental apartments (of which 313 are operational), 269 assisted living units, and 178 skilled nursing beds. In addition, PVM owns or manages approximately 1,200 independent living and 20 assisted living units through non-obligated entities. PVM has covenanted to provide annual audited financial statements and quarterly unaudited financials to the NRMSIRs. Fitch notes that PVM's disclosure practices have been excellent.
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