Fitch Rates Lutheran Senior Services, Missouri's, Series 2007 Bonds 'A-'; Outlook Stable.

TAMPA, Fla. -- Fitch has assigned an 'A-' rating to the $59.0 million Health and Educational Facilities Authority of the State of Missouri senior living facilities revenue refunding bonds (Lutheran Senior Services (LSS)) series 2007A-C. In addition, Fitch affirms the 'A-' rating on the approximately $94.1 million in outstanding debt, as listed below. The Rating Outlook is Stable.

Bond proceeds will be used to current refund LSS' outstanding series 1997 bonds, economically defease approximately $27.7 million debt issued for Meridian Village, fund approximately $9.5 million of capital expenditures, fund a debt service reserve fund, and pay costs of issuance. Meridian Village is a 261-unit continuing care retirement community (CCRC) located in Glen Carbon, IL. The bonds are expected to price the week of Jan. 22nd through negotiation led by Ziegler Capital Markets Group.

Unless otherwise specified, financial data and ratios reflect consolidating audited financial statements. In performing the analysis, Fitch considered both the obligated group and non-obligated affiliates. However, Fitch did not include the $46.1 million of debt associated with Lutheran Hillside Village (LHV) (rated 'A-' by Fitch) which has been unconditionally guaranteed by LSS. Through the nine month interim period ended Sept. 30, 2007 LHV covered maximum annual debt service by a solid 1.8 times (x) with overall occupancy of 97.8%. Fitch views the improving financial performance at LHV favorably and believes that a call on the guarantee from LSS is not likely.

The 'A-' rating is based on LSS' solid historical occupancies across all levels of care, stable operating history, solid liquidity relative to expenses, adequate historical coverage of pro forma maximum annual debt service (MADS), and a successful track record of facility development. LSS' historical operating performance and debt service coverage have been solid, with recent improvement in operating performance attributable to the successful addition of new units. However, the recent improvement in fiscal 2005 and in the nine month interim period has been constrained by continued additions of new units and facility upgrades. For fiscal 2005, LSS recorded an excess income of $140,000 (net of one-time, non-cash expenditures) on a consolidated basis and covered MADS by a strong 2.4x. Coverage without entrance fees was 1.3x, the highest recorded in the past five years. Although days cash on hand slipped to 461 days, cash levels increased by $15 million and cash to debt remained relatively stable at 52% on a consolidated basis as of Dec. 31, 2005

Fitch's primary credit concern continues to be LSS' high debt burden. Proforma maximum annual debt service of $12.7 million (excluding LHV MADS of $3.1 million) represents a high 15.4% of total 2005 revenues. Although the guarantee of the LHV debt is dilutive to LSS, the improved financial performance and increased occupancy at LHV over the last six months mitigates this concern. Management has been successful in adding units which Fitch expects to improve operational performance in the future. In addition, some of the additional development plans at LSS have been delayed in order to focus on the continued turnaround at LHV. Fitch believes that LHV will be merged into the LSS obligated group over the near term, thus increasing the size and strength of the System. Management continues to display sound discipline in growing the System and Fitch believes this development philosophy will continue.

The Rating Outlook is Stable. Management has indicated that an expansion project at Concordia Village in Springfield may be started sometime in late 2007. At this time it is undetermined what, if any, additional debt may be required. However, depending on the size and scope of the project negative rating pressure may occur.

Lutheran Senior Services is a type C provider headquartered in St. Louis, Missouri with eight CCRC campuses totaling 883 independent living apartments, 357 patio homes, 640 assisted living units, and 676 skilled nursing beds. LSS' total revenue was $82.2 million in 2005. 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.

LSS' Outstanding Issues:

--$21,740,000 Health and Educational Facilities Authority of the State of Missouri, Series 2005B 'A-';

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

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

--$20,390,000 Health and Educational Facilities Authority of the State of Missouri, Series 1997 'A-';

--$49,060,000 Health and Educational Facilities Authority of the State of Missouri Series 2000 'NR'(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.