OREANDA-NEWS. Fitch Ratings has assigned a 'BBB' rating to approximately \$24,540,000 of series 2015A revenue bonds to be issued by the Indiana Finance Authority on behalf of Marquette.

In addition, Fitch affirms its 'BBB' rating on \$34,515,000 in series 2012 fixed rate bonds.

The Rating Outlook is Stable.

Marquette also has \$23,440,000 of series 2010 variable-rate direct placement with BB&T outstanding, which Fitch does not rate.

The series 2015A bonds are expected to be issued as fixed rate. Proceeds will be used to refund the series 2010 bonds in full, potentially refund a currently callable portion of series 2012 bonds for debt service savings, fund a debt service reserve fund, and pay for certain costs of issuance. The bonds are expected to price the week of March 30, 2015.

SECURITY

The bonds are secured by a gross revenue pledge, a mortgage, and a debt service reserve fund.

KEY RATING DRIVERS

SUSTAINED FINANCIAL IMPROVEMENTS: The positive trend in operating and financial performance continued for the fourth year since the completion of independent living unit (ILU) expansion in 2010. In the fiscal year ended (FYE) Dec. 31, 2014, sound cash flows generated financial metrics well in line with Fitch's 'BBB' medians.

SOLID ILU OCCUPANCY: ILU occupancy has been solid at or over 90% over the last five years, despite a fairly competitive service area and recent increase in supply. Occupancy was a solid 96.6% in in 2014, signifying a stabilized ILU market as well as Marquette's solid competitive position.

CONSERVATIVE PRO FORMA DEBT: Following the series 2015A issuance, Marquette will have restructured its debt portfolio, which previously consisted entirely of floating-rate bonds as late as 2012. Fitch views the move to eliminate put and variable rate risk positively, and believes the projected increase in debt service (about 10%) due to higher fixed interest payments is manageable.

LOOMING CAPITAL PLANS: Marquette is undergoing a master planning process, which will likely result in major construction projects funded by new debt. Investments in skilled nursing and dementia care units remain a key priority.

RATING SENSITIVITIES

CLARITY ON CAPITAL PLANS: Fitch will evaluate the overall impact of the project and funding sources once plans are finalized. There is some capacity for additional debt at the 'BBB' rating level.

CREDIT PROFILE

Located in northern Indianapolis, IN, Marquette is a type-B continuing care retirement community (CCRC) with 312 ILUs (268 apartments and 44 cottages), 50 standard assisted living units (ALUs), 13 dementia care ALUs, and 96 skilled nursing beds. Total revenue in fiscal 2014 was \$28.6 million. Marquette is managed by Life Care Services, which manages 114 retirement communities nationwide.

Continued Operating and Financial Improvement

Financial improvement continued for the fourth year, supported by strong ILU occupancy that reached 96.6% in fiscal 2014, up from 94.9% the prior year. Strong results reflect Marquette's service offerings, long history, and good reputation in the market. Fiscal 2014 operating ratio of 100.4% and net operating margin-adjusted of 26.5% were consistent with 97.7% and 26.8% the prior year, as well as the respective medians of 97.4% and 20.4%.

Competitive but Stable ILU Market

One of Fitch's key credit concerns over the last two years was the increase in ILU inventory in Marquette's immediate service area. Hoosier Village (part of BHI Senior Living, revenue bonds rated 'BBB+'; Stable Outlook by Fitch) opened 100 IL/ALUs (75 were replacement units) in June 2013 and Barrington of Carmel opened in November 2013 with 134 ILUs. While both campuses are within 10 miles from Marquette with overlapping draws, ILU occupancy at Marquette was unaffected by the new supply. Both facilities are now over 80% occupied, and are not likely to materially impact Marquette.

Competition in the skilled nursing area has intensified, with an estimated increase of 400 new beds in the last 12-18 months according to management. As a result, occupancy declined to 73.8% in 2014 compared to 83.6% in fiscal 2013. While the reduced skilled nursing census has not yet materially impacted financial results, further weakening would be viewed with concern. In response, Marquette has been updating its skilled nursing units, with a focus on developing a longer-term strategy under the master planning process.

Looming Capital Plans

Over the last three fiscal years, capital spending has been muted, averaging only 47.7% of depreciation. The capital budget for 2015 is \$2 million, which is well below depreciation expense.

Master planning is underway, with priorities around the health care center, dementia care, therapy gym, and parking. While the overall cost of the projects is not yet determined, it is likely to be sizable and require additional debt in the next 12-24 months. Fitch will evaluate the financial and strategic impact of projected capital expenditures once plans are finalized.

Solid Liquidity

Unrestricted cash and investments totaled \$37 million at FYE 2014, equating to 577 days cash on hand, 65.1% cash to debt, and 8.8x pro forma cushion ratio, which compare favorably against the 'BBB' category medians of 408 days, 60.2%, and 6.9x.

DEBT PROFILE

At FYE 2014, Marquette had \$56.9 million in long-term debt outstanding, consisting of series 2012 fixed-rate bonds (59% of total) and series 2010 floating-rate direct placement with BB&T with an initial put date in December 2017 (41% of total debt). Current annual debt service is level at \$3.8 million. There are no swaps outstanding.

Following the 2015A transaction, all outstanding debt will be 100% fixed rate, and maximum annual debt service (MADS) will increase to an estimated \$4.2 million. Pro forma debt metrics are good, with MADS coverage of 2x and revenue-only MADS coverage of 0.7x compared to the respective medians of 2x and 0.9x. Debt burden is also manageable with MADS equating to 14.4% of revenues and 61% debt-to-capitalization compared to the respective medians of 12.3% and 59%.

DISCLOSURE

Marquette covenants to provide annual disclosure within 150 days of the end of the fiscal year and quarterly disclosure within 45 days of the end of each quarter. Bond covenants include 1.2x debt service coverage and 150 days cash on hand.