Fitch Affirms Presbyterian Villages of Michigan's Series 2005 Bonds at 'BB+'; Outlook Stable.
The rating affirmation at 'BB+' reflects Presbyterian Villages of Michigan's (PVM) light but stable liquidity, tighter expense control to offset lower investment income, solid overall occupancy, and adequate debt service coverage. On Sept. 30, 2009 PVM's level of unrestricted cash and investments improved to $12.1 million as compared to $9.4 million on Dec. 31, 2008. As a result liquidity indicators improved with days cash on hand growing to 138 from 104, a cushion ratio of 5.2 times (x) versus 4.1x and cash to debt improving to 39% from 30%. Due to tougher economic conditions, income from contributions and investments in 2009 is expected to be substantially lower compared to the average received over the last four years ($916,000 through Sept. 30 versus $2.7 million from 2005-2008). In response, PVM has implemented various expense reductions (including wage and benefits) and restructured management at the Village of Redford in an effort to improve operating profitability. Aggregate occupancy in the assisted living and nursing units has been stable in 2009 at 87% and 93%, respectively, while occupancy in the independent living units has slipped to 84% in 2009 from 92% in the year earlier period. However, the decline in ILU occupancy has been confined primarily to the Village of Westland campus and management has successfully maintained profitability at that campus.
PVM's historical coverage of maximum annual debt service (MADS) has been very stable at 1.6x, 1.7x and 1.7x in 2006, 2007 and 2008, respectively. Through the nine-month interim period, debt service coverage has slipped to 1.2x due primarily to realized losses on investments taken in March 2009. With improved investment performance and expected development fees earned in the fourth quarter, management is forecasting debt service coverage for fiscal 2009 to be around 1.5x. Fitch views PVM's historical debt service coverage as adequate, reflecting the corporation's rental contract type and the moderate income level of its market.
The Stable Outlook reflects Fitch's belief that PVM has taken appropriate actions to improve operating profitability and offset the impact of lower investment income and philanthropic contributions. Fitch believes that for the time being maintenance of the rating will be contingent on effective expense control and improving the payor mix in the nursing beds rather than increased occupancy and/or increased philanthropy given the difficult economic environment of southeast Michigan.
Headquartered in Southfield, MI, the PVM Obligated Group consists of three rental continuing care retirement communities located in Redford, Westland and Chesterfield Township, MI. Currently, the Obligated Group's three campuses total 328 independent rental apartments (of which 313 are operational), 269 assisted living units, and 178 skilled nursing beds. In addition, PVM owns or manages approximately 1,200 independent living and 28 assisted living units through non-obligated entities. PVM has covenanted to provide annual audited financial statements and quarterly unaudited financials to the to the Municipal Securities Rulemaking Board's EMMA system. Fitch notes that PVM's disclosure practices have been excellent.
Additional information is available at 'www.fitchratings.com'.