Published: August 23, 2010
Fitch Rates Total Longterm Care, Inc. (CO) 'BBB-'; Outlook Stable
NEW YORK - (BUSINESS WIRE) - Fitch Ratings has assigned a 'BBB-' rating to the following Colorado
Health Facilities Authority revenue bonds to be issued for the benefit
of Total Longterm Care, Inc. (TLC):
--Approximately $28 million series 2010A.
The Rating Outlook is Stable.
Bond proceeds, along with a $500,000 equity contribution, will be used
to reimburse TLC for project costs associated with the renovation and
expansion of its facilities; refund TLC's outstanding debt issued in
2002; fund a debt service reserve fund at bond closing; and pay costs of
issuance. This rating also reflects an additional $7 million of revenue
bonds to be issued at a later date. Total outstanding debt after these
financings will be approximately $35 million. The series 2010A bonds
will be issued as long-term, fixed-rate bonds and are expected to sell
the week of Sept. 20, 2010, via negotiation.
RATING RATIONALE:
--TLC is the only Program of All Inclusive Care for the Elderly (PACE)
provider in the Denver market and has a long operating history and
strong reputation for high quality service in this unique market niche.
Further, TLC's management team has extensive experience and long tenure
in providing elderly health care services.
--TLC's history of strong financial performance is a key credit
strength, evidenced by strong profitability and excellent historic pro
forma debt service coverage ratios.
--Debt burden indicators are mixed. While maximum annual debt service
(MADS) as a percentage of revenues is very manageable at less than 3% of
revenues, debt to capital ratios are moderately high at 43.2% on an
historic pro forma basis.
--Liquidity ratios are light, but will improve materially post financing
since a portion of bond proceeds will be used to reimburse TLC for prior
capital expenditures. Approximately $17 million of bond proceeds will be
used to reimburse TLC at bond closing
--TLC's revenue base of $105 million is relatively small with 99% of the
provider's revenues stemming from capitation based reimbursement
contracts with Medicare and Medicaid.
KEY RATING DRIVERS:
--Significant reductions in governmental reimbursement rates could have
a negative effect on TLC's profitability ratios which may lead to
negative rating pressure.
--Management has plans in place for further expansion into Colorado and
California to diversify its revenue base. Management's ability to
prudently deploy its capital assets while maintaining current
profitability and liquidity levels is key to maintenance of current
rating level.
SECURITY:
The bonds will be secured by the gross revenues and mortgages of the
obligated group, (currently consisting of Total Longterm Care, only),
and a fully funded debt service reserve fund.
CREDIT SUMMARY:
The 'BBB-'rating is supported by TLC's solid market position as the only
provider of PACE services in the Denver service area. In addition, TLC
has an excellent reputation for quality, a strong management team,
consistent revenue growth, increasing profitability, and strong pro
forma debt service coverage ratios. These positive credit factors serve
as significant mitigants to the provider's comparatively small revenue
base and the high payor mix concentration.
Total Longterm Care, Inc., a subsidiary of Total Community Options
(TCO), a non profit holding company for a group of companies
specializing in elderly care, is a health care service provider
established in 1989. The PACE program is an alternative to traditional
nursing home care, using a multi disciplinary approach to meet the
healthcare needs of the frail elderly in a highly personalized and
community based setting. In fiscal year (FY) 2009, TLC accounted for 64%
of the assets and 90% of the excess margin of TCO.
TLC has a solid market position as the only PACE provider in its service
area of Denver, CO. While there are two other PACE providers in the
state, market access is highly regulated by the Colorado Department of
Health. TLC's management team is also a major credit strength with
extensive experience and long tenure in elderly care services including
the management of continuing care retirement communities (CCRCs) and
other senior care related operations. The current CEO serves as the
president of the Colorado Association of Homes and Services for the Aged
and as a member of the Public Policy Committee for the National PACE
Association.
TLC has a history of strong financial performance with solid growth in
revenues and strong and increasing profitability. Despite the capitation
based reimbursement, profitability has been strong given the management
of expenses and provision of health care services in cost effective
settings. For FYs 2008, 2009 and unaudited 2010, TLC generated operating
margins of 9.3%, 9.8% and 11.4%, respectively. Excess earnings are also
strong at 10.3%, 9.8% and 11.6%, respectively over the same periods.
Excess margin dipped between 2008 and 2009 because of reduced investment
earnings. MADS coverage on a pro forma basis is very good at 4.7 times
(x), 4.8x and 6.1x for FYs 2008, 2009 and 2010. MADS as a percentage of
revenues is light at 2.6%, 2.3% and 2.1% over the same period.
Balance sheet ratios are mixed. TLC had 49 days of cash on hand (DCOH)
at June 2010, down from 73 DCOH in 2008 and 78 DCOH in 2009, but the
decline in cash reflects TLC's recent capital acquisitions funded from
cash reserves. Approximately $17 million of bond proceeds will be used
to reimburse the provider for these prior capital expenditures,
immediately improving the liquidity ratio, post financing, to 116 DCOH
and the cash to debt ratio to 83%. Debt to capitalization ratios will be
moderately high after this financing at 43.2%, but TLC is not planning
any additional long term financing in the near future.
Fitch's major credit concerns are TLC's relatively small revenue base
which is highly concentrated in terms of both payors and participants,
and the fact that TLC is 100% at risk for all health and allied care
costs incurred for a participant. In fiscal 2010, TLC earned $105
million providing services to approximately 1500 participants most of
whom live in Denver and the surrounding communities. Close to 99% of
TLC's total revenues is in the form of capitation revenue stemming from
reimbursement income from Medicare and Medicaid.
The Stable Outlook reflects Fitch's expectation that TLC will maintain
its strong financial performance and continue to build its liquidity
position. TLC's expansion plans may temporarily moderate the provider's
solid profitability trend but Fitch expects operational performance will
be sufficiently robust to support the rating.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the
Revenue-Supported Rating Criteria, this action was additionally informed
by the underwriter.
Related Research:
--'Revenue-Supported Rating Criteria', dated Aug. 16, 2010.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548606
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Fitch Ratings
Primary Analyst
Carolyn Tain, +1-415-732-7576
Senior
Director
650 California Street
San Francisco, CA 94108
or
Secondary
Analyst
Michael Borgani, +1-415-732-5620
Director
or
Committee
Chairperson
Jeff Schaub, +1-212-908-0680, New York
Managing
Director
or
Media Relations:
Cindy Stoller,
+1-212-908-0526, New York
Email: cindy.stoller@fitchratings.com
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