Fitch Rates Greenspring Village, Inc., Virginia Bonds 'BBB'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns a 'BBB' rating on the following:

-- $61.7 million Fairfax County Economic Development Authority (Virginia) Retirement Community revenue bonds (Greenspring Village, Inc. Facility) series 1999A;

-- $4 million Fairfax County Economic Development Authority (Virginia) Retirement Community revenue bonds (Greenspring Village, Inc. Facility) series 1999B Extendable Rate Adjustable Securities (EXTRAS).

The Rating Outlook is Stable.

The series 1999 bonds were issued on Nov. 18, 1999 via negotiation with B.C. Zeigler and Company. Bond proceeds were used to fund a $55 million purchase option by Greenspring Village (Greenspring), fund capitalized interest for six months, fund a debt service reserve fund and pay costs of issuance. Greenspring is pursuing a rating in compliance with original bond covenants. Effective Dec. 31, 2004, a purchase option was executed whereby Greenspring assumed the entire campus from the Springfield Campus, LLC.

The rating is supported by Greenspring's size, management of Erickson Retirement Communities (ERC) properties, solid occupancy, strong coverage and low leverage relative to the size of the facility. Greenspring operates a large and impressive campus that includes 1409 independent living units (ILUs), 99 assisted living units (ALUs) and 180 skilled nursing beds (SNFs). As opposed to dispersing these units over different locations, the centralization of services on the same campus provides significant economies of scale. Greenspring greatly benefits from ERC marketing and operations expertise, which has been proven by the success of other communities and is further demonstrated by Greenspring's current occupancy. Greenspring began construction of its facilities in 1998, and was completed in January of 2005. Occupancy levels for Greenspring are strong through the seven months of 2005 with levels for ALU and SNF of 89.2% and 86.7%, respectively. ALU and SNF occupancy has been in the upper 90th percentile and fell due to the opening of the final phase of these units in early 2005. Fitch expects occupancy levels to be in the 90% range over the near term. Occupancy for ILUs through the nine months of 2005 was a very high 98.9%. Greenspring currently has a waiting list of over 1,000 people waiting for available units which should keep occupancy levels high. Debt service coverage for fiscal 2004 was an impressive 10.0 times (x), mainly due to significant initial entrance fee receipts. Debt service coverage through the first seven months of fiscal 2005 remains a strong 5.4x. Maximum annual debt service (MADS) as a percent of revenues continues to improve, at 9.1% through the seven months, lower than Fitch's 'BBB' median of 9.7% and a significant decrease from 22.5% for fiscal 2001.

Credit concerns include low liquidity, marketing challenges and a dependence on ERC for management and marketing. Through the seven months of 2005, Greenspring's liquidity relative to expenses was light at 173 days and cash to debt was low at 30%, both lower than Fitch's 'BBB' medians of 278 days and 57%, respectively. However, this low liquidity is offset by the fact that Greenspring used entrance fee receipts to fund construction of new units on its campus and Fitch expects liquidity to grow over the near term due to turnover entrance receipts. Greenspring's large size and high number of units contains the inherent risk of significant unit turnover and maintaining high occupancy will remain an ongoing challenge for management.

The Stable Rating Outlook reflects the expectation that Greenspring will continue to maintain high occupancy levels and strong coverage of MADS while building liquidity through receipt of turnover entrance fees.

Greenspring is located in Springfield, VA, which is approximately 14 miles southwest of Washington D.C. Greenspring Village, Inc. Facility is a Type type-C CCRC with 1409 ILUs in three neighborhoods, 99 ALUs and 180 SNF beds. Greenspring had total revenues of approximately $55.8 million in fiscal 2004 net of the interest from the community loan. Greenspring covenants to provide audited annual financial information to the Nationally Recognized Municipal Securities Information Repositories (NRMSIRs) and to bondholders. Greenspring also covenants to provide quarterly financial information including balance sheet, income statement and cash flows but no management discussion and analysis to the NRMSIRS and bondholders. Fitch would like to see Greenspring incorporate a management discussion and analysis into its disclosure. Fitch has been informed that Greenspring plans to enter into a forward-starting swap with a notional amount of $30 million. Details of this swap will be provided in Fitch's full report.

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