Ed note: The following is published on Transforming Age’s web site. Read in detail if you’re interested in the formation and growth of of TA, Inc.; the transfer of funds from the Obligated Group to TA, Inc.; and the stability of the bond rating including best case/worse case senarios.
Published Fri 16 Jul, 2021 – 5:07 PM ET by Fitch Ratings
Fitch Ratings – New York – 16 Jul 2021: Fitch Ratings has assigned a ‘BB’ Issuer Default Rating (IDR) to Presbyterian Retirement Communities Northwest Obligated Group (PRCN; d/b/a/ Transforming Age [TA]). In addition, Fitch has affirmed the ‘BB’ ratings on the series 2013, 2015, 2016A, 2016B, 2019A, 2019B, and 2019C revenue bonds issued by the Washington State Housing Finance Commission on behalf of TA.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by the obligated group’s (OG) gross revenues, a mortgage on the OG’s facilities and debt service reserve funds.
ANALYTICAL CONCLUSION
The ‘BB’ rating reflects TA’s robust historical census levels, adequate operations and liquidity position, and its high leverage position and execution risks associated with its ongoing independent living unit (ILU) expansion project. TA’s expansion project entails building a new 21-story tower (Olympic Tower) with 77 new ILUs at its Skyline campus. The project is expected to be accretive to TA’s financial and operating profiles, with solid increase in top-line revenues and total cash flow levels and an initial entrance fee pool of approximately $100 million.
TA’s initial entrance fees are expected to be used to pay down temporary debt ($51 million) associated with the project and significantly boost its unrestricted reserves. The Stable Outlook reflects Fitch’s expectation that TA has enough financial cushion at its current rating level to absorb lingering pandemic pressures and that it will successfully execute and fill its Olympic Tower expansion project on-time and on budget.
Historically, about 6% of BBB rated bonds default within 10 years, but nearly 19% of BB junk bonds fail.