Fitch: Presbyterian Retirement Communities (FL) 2006A&B Bonds 'BBB+'; Upgrades Outstanding Debt.

TAMPA, Fla. -- Fitch Ratings has assigned an underlying 'BBB+' rating to Presbyterian Retirement Communities Obligated Group, Florida's (PRC) $41.18 million series 2006A bonds and $33.83 million series 2006B bonds, which are expected to be issued through the Orange County Health Facilities Authority. The series 2006A and B bonds will be issued as variable-rate demand bonds and are expected to be insured by Radian, whose insurer financial strength is rated 'AA' by Fitch. In addition, Fitch expects to assign a short-term rating closer to the closing date, based upon liquidity support to be provided by Bank of America. Fitch has also upgraded the underlying rating to 'BBB+' from 'BBB' to the outstanding bonds, listed at the end of the press release. The Rating Outlook is Stable.

Proceeds from series 2006A bonds will be used to refund the entire outstanding series 1998 bonds. The series 2006B bonds will be used to fund refurbishments and expansions at various PRC facilities. In addition, bond proceeds will fund a debt service reserve fund and pay for the costs of issuance. The bonds are expected to sell during the week of Jan. 23, 2006, via negotiation and will be sole managed by Raymond James & Associates, Inc.

The rating upgrade to 'BBB+' is based on PRC's sustained profitability levels and improved liquidity. Ongoing strengths include a low debt burden, attractive facilities in prime locations, good competitive position in their various markets, and solid management practices. Furthermore, PRC's reputation and solid history of acquiring and turning around troubled facilities is viewed favorably. Profitability remained solid in fiscal 2005 with an operating ratio of 98.7% and excess margin of 2.9% (excess income of $3.2 million) despite incurring increased expenses related to several one-time, unreimbursed hurricane charges of $650,000 and professional liability related charges during the year. In addition, the closure of a skilled nursing facility in early 2005 also affected profitability. Through the six months ended Sept. 30, 2005, PRC had an operating ratio of 96.6% and excess margin of 3.6% (excess income of $1.9 million). Operating performance has been driven by continued improvements in occupancy rates over the past few years. Fitch believes there are still numerous opportunities for improvement over the near term, especially as newly acquired projects begin filling up and the new units at the Julington Creek facility come on line.

Increased entrance fee receipts combined with solid profitability have led to growth in unrestricted cash and investments of $51.8 million at Sept. 30, 2005, from $41.1 million at fiscal 2004 (not including State of Florida minimum liquid reserve (MLR) requirement of approximately $21.7 million and $19.9 million, respectively). This translated to 199 days cash on hand, a pro forma cushion ratio of 7.0 times (x), and pro forma cash to debt of 46% at Sept. 30, 2005. While liquidity indicators remain below Fitch's 'BBB' Continuing Care Retirement Community (CCRC) medians, Fitch views favorably PRC's continued strategic capital investments to its numerous facilities, which have been substantial and reflected in the low average age of plant of 7.8 years. Furthermore, if the MLR funds are included, PRC's days cash on hand would have been approximately 282 days. Inclusive of the series 2006A and B bond issuance, PRC's leverage and debt service coverage remain better than Fitch's 'BBB' CCRC medians. In fiscal 2005, PRC had a pro forma MADS as a percent of revenue of 6.8% and MADS coverage of 3.8x.

Fitch's main credit concerns include risks associated with all of the PRC's facilities being located in Florida and low, but improving, occupancy rates at certain facilities. Fitch notes that Florida is one of the most challenging markets in the country to operate given the extremely litigious population base and the corresponding escalation in professional and malpractice liability premiums in the state. PRC has also been very active and astute in acquiring specific distressed facilities at very low costs.

The Rating Outlook is Stable, due to PRC's strong market position in its Florida markets and successful acquisition history since its inception. Fitch continues to believe that the facilities in Bradenton, FL and St. Petersburg, FL that were acquired in fiscal 2004 should be successfully integrated into the system and reach 90% occupancy over the medium term. Fitch believes these most recent members of the organization should solidify PRC's competitive position in each market and create certain economies of scale that should improve operating performance.

PRC has entered into a forward starting floating to fixed interest rate swap with a notional amount of $33.83 million to lock in a fixed rate in conjunction with the issuance of the series 2006B bonds. The counterparty is Lehman Brothers Commercial Bank, which is rated 'A+' by Fitch. Swap and termination payments will be subordinate to debt service and insured by Radian. The counterparty can only terminate the swap upon the downgrade of the insurer. In addition, PRC has an outstanding floating- to fixed-rate swap with an outstanding notional amount of $36.3 million, with the counterparty being Bank of America, which is rated 'AA-' by Fitch.

The PRC Obligated Group includes ten continuing care retirement communities, Westminster Services, Inc., and the PRC Foundation. The Obligated Group operates facilities in Jacksonville, Orlando, Bradenton, St. Petersburg, and Tallahassee, Florida. The organization currently operates 1,829 independent living units, 537 assisted living units, and 761 skilled nursing beds. Six of the ten communities are accredited by the CCAC. PRC offers type-B contracts at all of their facilities. In 2005, PRC reported total revenues of $109 million. PRC covenants to provide audited and quarterly financial disclosure to bondholders.

Outstanding bonds:

--$31,590,000 St. John's County, FL Industrial Development Authority fixed-rate bonds (Presbyterian Retirement Communities Project), series 2004A 'BBB+';

--$12,000,000 St. John's County, FL Industrial Development Authority taxable variable-rate demand bonds (Presbyterian Retirement Communities Project), Series 2005B NR (1)(2);

--$37,070,000 Orange County Health Facilities Authority bonds (Presbyterian Retirement Communities Project), Series 1998 NR (1)(3).

(1) Not Rated. (2) Backed by an irrevocable direct pay letter of credit from Allied Irish Bank, LLC. (3) Expected to be refunded with the issuance of the Series 2006A bonds.

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.