OREANDA-NEWS. Fitch Ratings has assigned a 'BBB' rating to the following bonds issued by the Industrial Development Authority of the City of Alexandria, VA (on behalf of Goodwin House Incorporated):

--\$73.1 million series 2015.

Additionally, Fitch has affirmed the 'BBB' rating on the following bonds issued by the Industrial Development Authority of the City of Alexandria, VA and Fairfax County Economic Development Authority, VA:

--\$136.5 million series 2007;
--\$24.2 million series 2005.

The Rating Outlook is Stable.

The 'BBB' rating pertaining to the series 2005 variable rate demand bonds (VRDBs) is an underlying rating. The series 2005 bonds are supported by a letter of credit (LOC) from Wells Fargo Bank, N.A. (rated 'AA-/F1+'; Outlook Stable by Fitch) that expires in July 2016.

Series 2015 bond proceeds will be used to refund Goodwin House's (GH) currently outstanding series 2005 bonds, provide approximately \$43.2 million to pay a portion of the development, renovation, and expansion costs at Goodwin House Alexandria (GHA), fund a reserve fund, and pay associated costs of issuance.

SECURITY
The series 2015 bonds and series 2007 bonds are secured by mortgages on GH's real estate, a gross receipts pledge, and respective debt service reserve funds. The series 2005 bonds are equally secured by GH's real estate and gross receipts pledge, and are also secured by a LOC from Wells Fargo Bank, N.A.

KEY RATING DRIVERS

CAMPUS REPOSITIONING PROJECT: Management is embarking on a repositioning project at its Goodwin House Alexandria campus, which is expected to cost approximately \$68.2 million with final project completion scheduled for 2017. Upon receipt of an executed guaranteed maximum price (GMP) contract, approved building permits, and certificate of need (CON), GH plans to build a five-story building which will include updated healthcare and memory support space. Additionally, GH plans to renovate certain floors to create more independent and assisting living capacity, upgrade common areas and additional amenities, and expand service functions at its original building. Fitch analysts toured the campus and viewed the project favorably as there is the necessity and demand to modernize healthcare operations. Fitch believes GH has sufficient financial cushion to absorb the additional debt into its current operating profile.

SOLID BALANCE SHEET METRICS: Despite the increase in additional debt and expected \$25 million equity contribution towards GHA's repositioning project, GH continues to have solid pro forma balance sheet metrics. As of Dec. 31, 2014 (three-months; unaudited), unrestricted cash and investments totaled \$132.4 million, which translated into 849 days cash on hand (DCOH), 9.9x pro forma cushion ratio, and 63.4% cash to debt, and compared favorably against Fitch's 'BBB' medians of 408 DCOH, 6.9x, and 60.2%, respectively.

STRONG DEMAND CHARACTERISTICS: Goodwin House maintains strong occupancy across all levels of care, which Fitch views as a primary credit strength. In fiscal 2014 (Sept. 30 year-end; audited), independent living unit (ILU) occupancy was a high 96%, assisted living unit (ALU) occupancy was 91%, and skilled nursing facilities (SNF) occupancy was 97%. Fitch believes that GH's strong demand is a key credit strength which supports the organization's successful financial profile.

FAVORABLE SERVICE AREA: Operating in Northern Virginia (Fairfax and Arlington counties - both rated 'AAA' by Fitch, and City of Alexandria), GH's markets display good service area characteristics such as above average wealth indicators, and stable housing markets - all of which support Goodwin's strong demand.

ELEVATED DEBT BURDEN: With the series 2015 new issuance, pro forma maximum annual debt service (MADS) increases to \$13.4 million from \$10.4 million and represented a high 17.9% of total revenues in fiscal 2014, which compared unfavorably against Fitch's 'BBB' median of 12.3%. However, pro forma historical debt service coverage (including entrance fees) is relatively consistent for the rating level averaging 1.7x over the past four fiscal years, which is slightly below the category median of 2x.

RATING SENSITIVITIES

SUCCESSFUL PROJECT COMPLETION: GH is waiting to receive the GMP, needed regulatory permits, and CON to begin project construction. Although management fully expects to receive each of these items, failure to do so would be viewed negatively by Fitch. If GH does not secure the necessary approvals to proceed with the repositioning project, management plans to use the bond funds for routine capital expenditures. However, in Fitch's opinion, the renovation of the healthcare operations will still need to be completed at some point to maintain competitiveness.

MAINTENANCE OF CURRENT PERFORMANCE: Fitch expects GH to sustain its current pro forma financial profile and solid demand characteristics throughout the project period. Any negative material deviation from plan would be viewed unfavorably.

CREDIT PROFILE
Goodwin House is a Type A continuing care retirement community (CCRC) that operates campuses in Alexandria, VA and Bailey's Crossroads, VA. Goodwin House Alexandria (GHA) consists of 261 ILUs, 41 ALUs, and 80 SNF beds. Goodwin House Bailey's Crossroads (GHBC) consists of 335 ILUs, 42 ALUs, 69 SNF beds, and 16 memory support beds. In fiscal 2014, Goodwin House had total operating revenues of \$70.4 million.

GHA REPOSITIONING PROJECT
Management is embarking on a repositioning project at its GHA campus, which is expected to cost approximately \$68.2 million with final project completion scheduled for 2017 and stabilized occupancy of certain new and repositioned units by March 2018. Upon receipt of an executed guaranteed maximum price (GMP) contract, approved building permits, and certificate of need (CON), GH plans to build a five-story building which will include updated healthcare and memory support space. Additionally, GH plans to renovate certain floors to create more independent and assisting living capacity, upgrade common areas and additional amenities, and expand service functions at its original building. Fitch analysts toured the campus and viewed the project favorably as there is the necessity and demand to modernize healthcare operations. Fitch believes GH has sufficient financial cushion to absorb the additional debt into its current operating profile.

The project will be funded by series 2015 bond proceeds and an expected \$25 million equity contribution, which will be spent after the bond proceeds. Overall, Fitch has some concern related to the fact that GH does not have an executed GMP and final regulatory approvals but believes management is in process of securing these necessary items. If GH is unable to secure the needed approvals and ultimately move forward with the project as planned, management has identified approximately \$43 million of routine capital spending (\$6 million for reimbursement of prior capital expenditures), which will be funded by the series 2015 bonds. In this alternative scenario, GH will not spend \$25 million of equity and thus continue to build unrestricted balance sheet reserves.

RATING ASSIGNMENT OF 'BBB'
The 'BBB' rating continues to be supported by GH's solid balance sheet, strong demand indicators, positive service area characteristics, and adequate profitability that supports satisfactory MADS pro forma debt service coverage. Fitch's main credit concerns are centered around GH's repositioning project and low debt service coverage by revenue only, which is not uncommon for a type-A CCRC.

STRONG DEMAND IN A FAVORABLE SERVICE AREA
Goodwin House's solid demand characteristics help support the organization's overall successful financial profile. Goodwin House has a long history of operating in the Northern Virginia service area, which is an additional positive credit factor. The primary markets of Arlington County (general obligation bonds rated 'AAA' by Fitch) and Fairfax County (general obligation bonds rated 'AAA' by Fitch) each have solid population growth trends, high wealth levels, and a diverse economic base. Additionally, entrance fees continue to be consistent with local housing prices.

Occupancy continues to be a primary credit strength for GH as ILU occupancy was nearly 100% reserved and occupied through Dec. 31, 2014 (unaudited). Both ALU and SNF occupancy were strong at 93% and 97%, respectively, for the same period.

CONSERVATIVE DEBT PROFILE
Post issuance, 100% of Goodwin House's debt will be fixed-rate, which Fitch views as conservative. Currently, GH has an outstanding swap with Allied Irish Bank that had a negative mark-to-market valuation of \$458,862 as of March 31, 2015. However, GH has no collateral posting requirements related to the swap, which expires in October 2015.

DISCLOSURE
Goodwin House provides quarterly utilization and financial information to the MSRB's EMMA system. Fitch views Goodwin House's disclosure practices as excellent, since it includes management discussion and analysis and semiannual investor calls.