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Market Overview

Fitch Affirms La Vida Llena's (NM) Rev Bonds at 'BBB'; Outlook Stable

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NEW YORK--(BUSINESS WIRE)--

As part of its ongoing surveillance review process, Fitch Ratings has affirmed the ratings on the following bonds issued by the New Mexico Hospital Equipment Loan Council, on behalf of La Vida Llena (LVL) at 'BBB'.

--$18.8 million series 2010A;

--$1.8 million series 2010B;

--$19.9 million series 2010C.

The Rating Outlook is Stable.

RATING RATIONALE:

--LVL is the dominant provider, as it is the only continuing care retirement community (CCRC) and Type A life care provider in Albuquerque, NM.

--Fitch views LVL's strong historical independent living unit (ILU) occupancy as a key credit strength, demonstrated by a 96% average over the past three fiscal years.

--LVL has a solid financial profile, highlighted by sound liquidity, consistent profitability, and good debt service coverage.

--With a small revenue base ($18.1 million), LVL's operations and profitability are susceptible to adverse economic pressure.

--LVL's new ILU construction project, Nueva Visa (NV), is on time and on budget. So far, 71% of the units are presold and management expects fill-up to occur by opening date in March 2012.

KEY RATING DRIVERS:

--Successful construction completion and occupancy of NV;

--Maintain financial profile consistent with historical trends.

SECURITY: The bonds are secured by mortgage on land and buildings and gross revenues of the obligated group. Additionally, the series 2010A bonds are secured by a debt service reserve fund.

CREDIT SUMMARY:

Located in Albuquerque, New Mexico, La Vida Llena is a Type A CCRC consisting of 272 ILUs, 82 assisted living units (ALUs), and 44 skilled nursing beds (SNFs). In fiscal 2011, LVL had $18.1 million in total revenues.

The 'BBB' rating affirmation is supported by LVL's dominant market position, strong ILU occupancy, and solid financial profile. Fitch's main credit concerns include successful completion and occupancy of LVL's new NV campus and a high debt burden for the 'BBB' rating category.

Fitch views LVL's market dominance as the organization's primary credit strength as LVL is the only Type A life care facility in Albuquerque. LVL's market position helps generate solid operating profitability, which in turn supports good balance sheet growth and debt service coverage. As of March 31, 2011 (audited), LVL reported $2 million in operating income, which equated to a 7.4% net operating margin and 30.6% net operating margin - adjusted. Both metrics compare favorably against Fitch's respective 'BBB' category medians of 6.8% and 18.0%. Solid profitability has supported balance sheet growth illustrated by 652.7 days cash on hand, 7.8 times (x) cushion ratio, and 63.1% cash to debt in 2011, compared to 468.6 days, 5.3x, and 60.4% in the prior year.

LVL has always maintained high ILU occupancy. In fiscal 2011, ILU occupancy was 93%, which is considered low by management. However, management states there are 11 ILUs currently sold but have not yet been moved into, which helps explain the slight ILU decline in 2010.

LVL's NV construction project, consisting of 58 ILUs, is expected to be completed by March 2012. As of July 12, 2011 management stated there are 41 ILU pre-sales, which is consistent with LVL's expectations. Construction is on time and on budget, as LVL has approximately $11.2 million remaining toward the new facility. With last year's debt issuance to fund the ongoing construction project, LVL's debt burden is high. Maximum annual debt service (MADS) of $3.2 million represented 17.9% of total revenues in 2011, which compares unfavorably against Fitch's median of 12.8%.

As of March 31, 2011, 45% of LVL's outstanding debt of $41 million was in fixed-rate mode. The remaining 55% is in variable-rate mode and purchased by Compass Bank (rated 'A+/F1' by Fitch). LVL has a forward starting swap with Compass Bank that begins in August 2012.

The Stable Rating Outlook reflects Fitch's expectation that LVL will maintain current profitability and liquidity trend through the construction and fill-up period of NV.

Disclosure: LVL has covenanted to provide financial information to the Municipal Securities Rulemaking Board's EMMA system.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

'Revenue-Supported Rating Criteria', dated June 20, 2011.

'Rating Guidelines for Non-Profit Continuing Care Retirement Communities', dated Dec. 15, 2008.

For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.

Applicable Criteria and Related Research:

Rating Guidelines For Nonprofit Continuing Care Retirement Communities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=418608

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.

Fitch Inc.
Primary Analyst
Michael Burger, +1-212-908-0555
Associate Director
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Michael Borgani, +1-415-732-5620
Director
or
Committee Chairperson
Jeff Schaub, +1-212-908-0680
Managing Director
or
Media Relations
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com

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