OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB' rating on approximately $16.8 million of St. John's County Industrial Development Authority, FL fixed-rate revenue bonds series 2007, issued on behalf of Life Care Ponte Vedra (dba Vicar's Landing; VL).

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of gross revenues, a first mortgage lien, security and interested in residency agreements, and a debt service reserve fund.

KEY RATING DRIVERS

CONSISTENTLY SOLID OPERATING PERFORMANCE: VL has produced consistently strong operating results as evidenced by an average operating ratio of 94.5% and a net operating margin (NOM)-adjusted of 26.3% over the last four years, both ahead of Fitch's 'investment grade' medians. Stable operating results have produced solid debt service coverage which averaged 2.1x over the same time period.

STRONG INDEPENDENT LIVING OCCUPANCY: Operating performance has been supported by strong occupancy in VL's independent living units (ILU). Occupancy has averaged 96.4% over the last four years and was at 97.8% through the six-month interim period (ended June 30, 2016).

LIGHT LIQUIDITY POSITION: VL's liquidity position is light with 295 days cash on hand (DCOH), 4.3x cushion ratio and 42.5% cash to debt at June 30, 2016, all below Fitch's 'BBB' medians. VL's capital spending has averaged 232% of annual depreciation over the last four years which has stunted liquidity growth, but capital expenditures are expected to decrease significantly starting in 2016, which should help VL build its balance sheet position over the medium term.

DEBT REFINANCING: VL has entered into a forward delivery bond purchase agreement with Compass Mortgage Corporation (CMC) for the issuance and purchase of the series 2016 bonds in November of 2016. Bond proceeds will be used to refinance VL's series 2007 bonds, fund a debt service reserve fund and pay for costs of issuance. The refinancing is expected to lower maximum annual debt service (MADS) to $2.2 million from the current $3.2 million.

RATING SENSITIVITIES

STABILITY EXPECTED: Fitch expects Life Care Ponte Vedra to continue producing stable operating results that support solid debt service coverage. Additionally, Fitch expects the community to build its liquidity position over the medium term now that its major capital projects are completed.

CREDIT PROFILE

Vicar's Landing is a Type A life-care continuing care retirement community (CCRC) consisting of 227 ILUs, 38 private ALUs, and 60 SNF beds. The community is located approximately 20 miles southeast of downtown Jacksonville, FL. In fiscal 2015, VL's total operating revenue totaled $20.1 million.

CONSISTENTLY SOLID OPERATING PERFORMANCE

VL's operating ratio of 93.6% and NOM-adjusted of 25.6% through the six-month interim period were both ahead of Fitch's medians of 96.1% and 19.3%, respectively. Solid operations have been supported by strong occupancy and good net entrance fee receipts which have averaged at $3.8 million annually over the last four years. VL's waiting list of potential residents had 219 depositors as of 6/30/16, which should help support solid entrance fee receipts over the medium term.

Positive operations have produced stable and satisfactory debt service coverage over the last four audited years. Debt service coverage was 1.5x through the six-month interim of 2016, below the 'BBB' median on 2.0x, but comparable to coverage through the six-month interim period of 2015.

STRONG INDEPENDENT LIVING OCCUPANCY

VL's ILU occupancy has been very strong over the last four years and was at 97.8% at June 30, 2016. VL is located in Ponte Vedra Beach, FL and serves an upscale service area northeastern portion of Florida. VL's location in Ponte Vedra Beach and entrance fees that are in line with area housing prices help support the consistent ILU demand. Assisted Living (AL) and skilled nursing facility (SNF) occupancies have been historically lower and were at 88% and 74%, respectively at June 30, 2016. However, VL is a Type-A community that does not accept outside admits, and its skilled nursing payor mix consists predominantly of lifecare residents, diminishing the importance of occupancy in the SNF.

LIGHT LIQUIDITY POSITION

VL's $13.1 in unrestricted cash and investments at June 30, 2016 equated to 295 DCOH, an 4.3x cushion ratio and 42.5% cash to debt, all below Fitch's 'BBB' medians of 400 DCOH, 7.3x and 60%, respectively. Liquidity growth has been restricted over the last few years by increased capital spending which has averaged 232% of annual depreciation over the last four years. Capital expenditures are expected to decreased significantly in 2016, which, together with debt service savings from the proposed refinancing, should help VL build its cash position over the medium term.

DEBT PROFILE

Fitch views VL's current debt profile as moderate, consisting of approximately 76% fixed-rate and 24% variable-rate debt. Approximately half of VL's debt is a bank placement, which is aggressive. However, the bank debt conforms to the 2007 MTI, with the bank having no additional covenants or additional debt acceleration capabilities, during the 10-year initial term of the bonds.

VL has entered into a forward delivery bond purchase agreement with CMC, under which CMC has agreed to purchase approximately $15.7 million of series 2016 bonds in November of 2016. Bond proceeds will be used to refinance VL's series 2007 bonds, fund a debt service reserve fund and pay for costs of issuance. The 2016 bonds are expected to be variable rate and VL has entered into a forward starting interest rate swap agreement to synthetically fix the 2016 bonds. The refinancing is expected to bring substantial present value savings to VL, as well as lower maximum annual debt service to $2.2 million from the current $3.2 million.

DISCLOSURE

VL's covenants to provide annual and quarterly disclosure through the Municipal Rule Making Board's EMMA system.