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Fitch Rates Lutheran Senior Services, MO, Series 2005B Bonds 'A-'.


TAMPA, Fla. -- Fitch has assigned an 'A-' rating to the $22.9 million Health and Educational Facilities Authority of the State of Missouri senior living facilities revenue refunding bonds (Lutheran Senior Services) series 2005B. In addition, Fitch affirms the 'A-' rating on the approximately $95.6 million in outstanding debt, as listed below. The Rating Outlook is Stable. Legal documents have not yet been provided but no changes to existing security provisions are anticipated. The bonds are expected to be on parity with outstanding debt, with security provided by a gross revenue pledge
Gross Revenue Pledge
A stipulation in a municipal bond indenture that requires the issuer (the municipality selling the bonds to fund a given development project) first to use revenues to pay down the issue's debt-servicing costs, delegating operating costs as second priority and likely funding them from other revenue sources. These bonds are most often tax free at the federal level.
, a debt service reserve fund, and a 1.1 times (x) rate covenant. Bond proceeds will be used to refund the outstanding series 1996A bonds, fund a debt service reserve fund, and pay costs of issuance. The bonds are expected to price either the week of Sept. 26 or Oct. 3 through negotiation by Ziegler Capital Markets Group. Unless otherwise specified, financial data and ratios reflect consolidating audited financial statements. However, in performing the analysis, Fitch considered both the obligated group and non-obligated affiliates.

The 'A-' rating is based on Lutheran Senior Services' (LSS LSS - Lab Support Services
LSS - Laboratory for Student Success
LSS - Laboratory Shift Superintendent
LSS - Labrador State School (Gold Coast, Australia)
LSS - Laminated/Stainless Steel
LSS - Large Sample Size
LSS - Large Scale Structure
LSS - Large SICPS Shelter
LSS - Large Studio System
LSS - Laser Subsystem
LSS - Last Song Syndrome
LSS - LATA Switching System (Bellcore)
LSS - Launch Sequence Simulator
LSS - Launch Status Summarizer
) solid utilization of existing services, stable operating history, strong liquidity relative to expenses as evidenced by days cash on hand of approximately 505 days at Dec. 31, 2004, adequate historical coverage of pro forma maximum annual debt service (MADS MADS - Maintenance & Diagnostic Subsystem
MADS - Malta Association of Dental Students
MADS - Master Alarm Distribution System
MADS - Maximum Annual Debt Service
MADS - Membrane Assisted Distillation Stripping
MADS - Message Accountability Delivery System
MADS - Militarized Advanced Disk System
MADS - Missile Approach Detector Systems
MADS - Mission Area Deficiency Statement
MADS - Modified Air Defense System
MADS - Modular Auxiliary Data System (NASA)
), and excellent history of successful facility development.

LSS' historical operating performance and debt service coverage have been strong, with recent declines in operating performance attributable to the expansion and start-up of additional facilities. The most recent start-up campus, Meramec Bluffs, has filled up ahead of schedule and is currently beginning construction of its phase III expansion, which involves the construction of 88 skilled nursing beds. Fitch expects new CCRC CCRC - Canadian Certified Rehabilitation Counselor
CCRC - Canadian Community Reinvestment Coalition
CCRC - Capital Collateral Regional Counsel (Florida)
CCRC - Certified Clinical Research Coordinator
CCRC - Coast Caregiver Resource Center
CCRC - Combat Crew Replacement Center
CCRC - Comissão de Coordenação da Região Centro
CCRC - Computer Crime Research Center
CCRC - Consolidated Commercial Refile Center
CCRC - Construction Candidates Review Committee
 (continuing care retirement community) operations to continue to improve and to be in line with LSS' more mature facilities once the new campuses and expansions are complete. Demand for units at the new facilities has been strong and Fitch does not expect occupancy to be a problem. Pro forma MADS coverage was a below-average 1.7x in 2004. However, Fitch believes that this is somewhat conservative as it does not include any revenues from the newly acquired (April 2005) Lenoir Woods facility, and MADS of $11.9 million used in the calculation includes approximately $2 million in debt service payments related to Meridian Village, a non-obligated group CCRC affiliate. Pro forma MADS coverage on an obligated-group-only basis improves to 1.9x in 2004 and Fitch expects debt service coverage to improve further once the earnings before interest, taxes, depreciation, and amortization (EBITDA) of Lenoir Woods is included. LSS has met or exceeded its budget in each of the past 20 years, which Fitch views positively.

Fitch's main credit concerns include LSS' high debt burden and risks associated with the construction and fill-up of the Meramec Bluffs and Heisinger Bluffs campuses. In addition, LSS has future development plans that anticipate additional debt issuance, which could negatively affect capitalization and balance sheet measures. The size and scope of additional debt could eventually result in downward rating pressure. However, LSS has a history of prudent and deliberate development and Fitch believes any future development will occur in the same fashion, thus mitigating these risks. Fitch will continue to monitor LSS' operational profile and assess the impact, if any, the additional debt may have on the rating.

Lutheran Senior Services is a type C provider headquartered in St. Louis, Missouri, with seven CCRC campuses (six in the obligated group) totaling 853 independent living apartments, 357 patio homes, 597 assisted living units, and 587 skilled nursing beds. In addition, LSS is currently developing 88 skilled nursing beds converting 20 existing skilled nursing beds to assisted living dementia units at Meramec Bluffs. Total revenue was $63.3 million in 2004. LSS covenants to provide audited and quarterly information to bondholders, which is viewed favorably. The covenant to provide quarterly disclosure provides only a statement of operations and balance sheet; however, management will provide a statement of cash flows and utilization statistics upon bondholder request.

Outstanding Debt:

--$30,000,000 Health and Educational Facilities Authority of the State of Missouri series 2005 'A-';

--$22,000,000 Industrial Development Authority of the County of Cole, Missouri series 2004 'A-';

--$22,455,000 Health and Educational Facilities Authority of the State of Missouri series 1996A 'A-';

--$21,095,000 Health and Educational Facilities Authority of the State of Missouri series 1997 'A-'.

--$50,000,000 Health and Educational Facilities Authority of the State of Missouri series 2000 Not Rated(1).

(1)The series 2000 bonds are variable-rate demand bonds secured by a direct pay letter of credit from Firstar Bank. Fitch was not asked to rate the 2000 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.
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Publication:Business Wire
Date:Sep 22, 2005
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