OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB' rating on the following bonds issued by Illinois Finance Authority on behalf of Tabor Hills:

--$18.71 million series 2006 revenue bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by the obligated group's gross revenues, a mortgage lien on Tabor Hills' facilities, and a debt service reserve fund.

KEY RATING DRIVERS

CONSISTENT LIQUIDITY GROWTH: Unrestricted cash and investments of $16.2 million has grown steadily and is good for the rating category, equaling 325 days cash on hand (DCOH), 10.9x cushion ratio and 86.7% cash-to-debt at March 31, 2016.

ADEQUATE OPERATING PROFITABILITY: Operating profitability was very good during fiscal 2013 and 2014 and outperformed Fitch's 'BBB' category medians. Performance in fiscal 2015 softened with the net operating margin dropping to 7.1% from 16.6% the year earlier. The profitability decline was due to increased pension expenses as a result of a Tabor Hills retirement plan modification that occurred several years ago. Lower pension expenses and better labor cost controls in the current fiscal year have resulted in increased earnings, with the net operating margin improving to 11.4% through the first six months of fiscal 2016.

LOW DEBT POSITION: In fiscal 2015, maximum annual debt service (MADS) represented just 7% of total revenue compared to Fitch's 'BBB' category median of 12.4%. In addition, adjusted debt-to-capitalization of 43.5% in fiscal 2015 is well below the 58.8% 'BBB' category median.

SOLID DEMAND TRENDS: Demand at Tabor Hills remains healthy with average occupancy of 95% in the independent living units (ILU), 88% at the assisted living units (ALU), and 88.3% in the skilled nursing facility (SNF) during fiscal 2015. For the first six months of fiscal 2016, ILU occupancy was 92%, ALU occupancy increased to 93%, and SNF demand softened with 84% occupancy due to lower census for short-stay rehabilitation patients.

HIGH SKILLED-NURSING EXPOSURE: Tabor Hills' large exposure to skilled nursing services (at 73% of net resident service revenues in fiscal 2015) and its growing Medicaid business (25% of net revenues in fiscal 2015) are somewhat of a credit concern as it subjects them to greater operating risks due to high patient attrition and governmental reimbursement pressures. Medicaid increased in fiscal 2015 and the first six months of fiscal 2016 due to lower Medicare census and reduced lengths of stay for short-stay rehabilitation patients.

RATING SENSITIVITIES

SUSTAINED OPERATIONS AND BALANCE SHEET METRICS: The 'BBB' rating assumes that Tabor Hills maintains its current credit profile, characterized by solid occupancy, adequate operations and good liquidity balances.

CREDIT PROFILE

Located in Naperville, IL (approximately 28 miles west of Chicago), Tabor Hills is a type-C continuing care retirement community consisting of 104 town-home ILUs, 95 ALUs, and 211 SNF beds. Total operating revenue in fiscal 2015 was nearly $21 million.

CONTINUED LIQUIDITY IMPROVEMENT

Tabor Hills has grown its unrestricted cash and investment position since fiscal 2009, which has led to a steady improvement in liquidity metrics. At March 31, 2016, Tabor Hills' unrestricted cash and investments totaled $16.2 million, which equates to 86.7% of long-term debt and 10.9x cushion ratio. This compares favorably to the respective 'BBB' category medians of 60% and 7.3x. Liquidity verses expenses improved over this period as well and DCOH was 325 at March 31, 2016 compared to the 'BBB' category median of 400 DCOH. Liquidity balances were expected to moderate during the next several years as a result of higher routine capital expenditures and a $7 million project to expand (20 beds) and renovate its SNF facility. However, management cancelled the SNF expansion given the census pressures in the Medicare short-stay rehabilitation business. Alternative plans for the SNF include a $1.2 million renovation to the first floor for its rehabilitation services and the addition of adult day care programs.

GOOD, BUT SOFTENED, OPERATING PROFITABILITY

Tabor Hills' consistently solid occupancy and good expense controls supported very good profitability during fiscals 2013 and 2014. Effective Dec. 31, 2013, Tabor Hills froze its defined benefit pension plan, dramatically reducing its pension expenses during fiscals 2013 and 2014. After a record year in fiscal 2013, the operating margin and net operating margin were a healthy 6.5% and 16.6%, respectively, in fiscal 2014. Additionally, the 87.8% operating ratio was favorably below Fitch's 96.1% 'BBB' category median. Nonetheless, earnings performance in fiscal 2015 softened as a result of a large increase in pension expenses. For fiscal 2015, Tabor Hills produced a 7.1% net operating margin and 96.9% operating ratio. While Fitch views the elimination of the pension plan as positive over the long term, since benefit expenses are more predictable and liability growth is capped, volatility is expected in the medium term. For the unaudited six-month (6M) period ending March 31, 2016, the net operating margin and operating ratio rebounded to 11.4% and 89.2%, respectively, due to lower pension and staffing costs and better ALU occupancy.

MANAGEABLE DEBT POSITION

Tabor Hills' debt position is manageable with all fixed-rate debt and no swaps. The debt service coverage ratio of 1.5x in fiscal 2015 dropped from 2.5x in the prior year due to the aforementioned pension expenses. Through the 6M ended March 31, 2016, the debt service coverage ratio rebounded to 2.1x as a result of the increased profitability. Furthermore, maximum annual debt service (MADS) is a moderate 7% of fiscal 2015 revenues, comparing favorably to the 'BBB' category median of 12.4%. Favorably, no additional debt is planned over the next several years.

HIGH SKILLED-NURSING EXPOSURE

A credit concern is Tabor Hills' high proportion of SNF beds relative to ILUs, with approximately two nursing beds for every ILU. This concentration subjects Tabor Hills to governmental reimbursement modifications, regulatory items, healthcare practice changes, and competition for patients from higher unit turnover. However, Tabor Hills received 'distinct part' designation under Medicaid, which limits Medicaid eligible beds to 60 of its licensed 211 SNF beds. Management continually demonstrates its ability to effectively balance occupancy and payor mix and this designation assists them in operating their skilled nursing business. SNF private-pay business amounted to a very healthy 66% of net revenues for 6M March 31, 2016, up from about 50% in fiscal 2010. Nevertheless, Tabor Hills' SNF Medicare business declined to 8% of net revenues during the interim fiscal 2016 period from 17% in fiscal 2014 as a result of new care-management protocols from mandatory bundled payment initiatives for joint-replacement procedures. Nonetheless, Tabor Hills' 5-star CMS rating, favorable quality outcomes, and participation in several accountable-care organizations position it well in the Medicare short-stay rehabilitation business.