Fitch Downgr Asbury Methodist Village -- Maryland -- To 'BBB'; Outlook Neg.

Business Editors

Fitch Ratings has downgraded to 'BBB' from 'A-' the $32.8 million City of Gaithersburg, Maryland first mortgage economic development revenue refunding bonds, series 1993, issued on behalf of Asbury Methodist Village (Asbury). The Rating Outlook has been revised to Negative.

The rating downgrade results from a substantially weakened balance sheet characterized by both increased debt and reduced liquid reserves. Adding nearly $35 million of debt over the last 2 years to fund various projects, Asbury's cash to debt ratio has declined from 49% at Dec. 31, 1999 to 25% at Dec. 31, 2001. Days cash on hand has also declined over the same period from 386 days to 234 days, as Asbury's aggressive expansion plans have used existing cash reserves and required the issuance of debt for funding. Debt to cash flow increased to 22.5 times (x) in 2001, well beyond the Fitch 'A' median of 3.4x.

Over the next 36 months two new projects concurrently under development will create additional fill-up and construction risk. Asbury is currently developing 92 additional independent living units and cottages on its Asbury Solomons Island campus, for which it issued $24 million of variable rate demand bonds in October 2001. The units are expected to be completed and ready for occupancy in October 2002. The second development is an $18 million conversion of a former 194 unit assisted living facility into 76 independent living apartments, expected to be available in April 2004. Asbury expects to issue additional variable rate bonds in early 2003 to finance this project. Both projects will produce substantial entrance fees.

Profitability collapsed in fiscal 2001 as investment income declined by nearly 90% (from $5.9 million in 2000 to $650,000 in 2001) and bad debt expense increased $1 million, contributing to Asbury's very weak fiscal 2001 excess loss of negative 12.9%, down substantially from negative 3% in fiscal 2000. Through the three months ended March 31, 2002 operations have rebound slightly, though still producing a net deficit of negative 3.3%.

The obligated group (formed in 1997) consists of two continuing care retirement communities (CCRCs) -- Asbury Methodist Village and Asbury-Solomons, Inc. The obligated group operates two full-service, Type 'C' CCRCs in Gaithersburg and Solomons Island, Maryland, consisting of 958 independent apartments, villas, and cottages, 166 assisted living/domiciliary units, and 327 nursing care beds. The obligated group forms just a piece of a much larger entity named Asbury Services, which has acquired and developed a number senior living properties throughout the country over the past several years, though the obligated group has no obligation on the debt of any of these entities. Asbury's disclosure effort to Fitch has been favorable in terms content and accuracy of financial statements, but insufficient in terms of timeliness and disclosure of significant events.