Fitch has released its nonrated descriptive report on approximately $76.6 million Colorado Health Facilities Authority Revenue Bonds (Christian Living Communities, Inc.), Series 2006A-C. Fitch's descriptive credit report provides analysis of significant credit factors and includes Fitch's evaluation of the strengths and risks surrounding this credit. No request was made for a rating on this transaction, and Fitch did not review all information or complete all procedures necessary to reach a final credit rating. Generally, Fitch regards unenhanced debt issued with financial characteristics similar to the described facility as being below investment grade. The bonds are expected to sell during the week of Oct. 25, 2006 via negotiation through Ziegler Capital Markets Group and Stifel, Nicolaus & Company, Inc.
Christian Living Communities (CLC) will use the proceeds of the series 2006A-C bonds to refund CLC's outstanding series 1997, 1997A, and 2002 bonds and fund construction, marketing, and development costs of the expansion of the Holly Creek campus and Adult Day Care Services at the Johnson Center. Bond proceeds will also be used to fund a debt service reserve fund, fund interest for 24 months (on the cost of the project only), fund the letter of credit and remarketing fees on the series 2006 bonds, and pay certain issuance costs.
CLC has been providing senior living services in the market place for more than 30 years, which is a key credit strength. Utilization rates have been outstanding over the past several years at each facility, and the fill-up at the existing Holly Creek facility has gone well. CLC has had sound financial performance, except in 2005 when start-up losses at Holly Creek and a $2.5 million future services obligation resulted in a loss of more than $4 million. The future services obligation is a noncash deduction from revenue. In addition, the Holly Creek primary market area (PMA) shows sound demographics, with housing values in excess of the proposed entrance fees, good unemployment data, and steady population growth. The Holly Creek expansion of 84 independent living units (ILUs) has exhibited strong pre-sale velocity, with 66.7% of the units being sold since January 2006. Forecast debt service coverage of 1.9 times (x) is achievable given historical results.
Fitch's main credit concern is the competitive nature of the service area. There are currently six competitors in the market and two planned communities, including an Erickson Retirement Community facility with more than 1,500 planned units. CLC's historical liquidity has been weak, with days cash on hand at approximately 143 days in 2005. However, Fitch notes that until the construction of Holly Creek in 2005, CLC operated only rental facilities, which typically have lower liquidity levels. While Fitch expects that liquidity will increase, it is forecast at 269 days in 2010, which is still below the median for investment-grade retirement communities.
Fitch views CLC more favorably than start-up communities due to the successful history of the organization and relatively minor expansion being undertaken at Holly Creek. Fitch believes that the Holly Creek expansion exhibits the characteristics to be successful and continue CLC's success in the PMA.
For a copy of Fitch's credit analysis, visit the Fitch Ratings web site at www.fitchratings.com or contact Fitch at 1-800-753-4824.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
