OREANDA-NEWS. November 17, 2015. Fitch Ratings has affirmed the 'BBB' rating on the following bonds issued on behalf of the Philadelphia Presbytery Homes, Inc. (PPHI) obligated group (OG).

--\\$38,300,000 Montgomery County Industrial Development Authority Revenue Bonds (Philadelphia Presbytery Homes, Inc. Project) Series 2010A

The Rating Outlook is Stable.

SECURITY

Pledge of gross revenues, first lien mortgage and security interest in OG facilities and property, and a debt service reserve fund.

KEY RATING DRIVERS

CONSISTENT DEBT SERVICE COVERAGE: Maximum annual debt service (MADS) coverage has been very consistent, averaging 2.3x over the last four audited years, above Fitch's 'BBB' category median of 2x. MADS coverage rose to 2.7x in 2014, due to a strong year for net entrance fee receipts, which were up 21% year over year. MADS coverage was remained good at the nine month 2015 interim period at 1.9x.

LIQUIDITY CONTINUES TO GROW: PPHI's unrestricted cash and investments grew by 41% over the last four audited years. At Sept. 30, 2015, PPHI had 411 days cash on hand (DCOH), a 10.1x cushion ratio and 69% cash to debt, all of which are better than Fitch's 'BBB' category medians.

MIXED FINANCIAL PERFORMANCE: Over the last 2.5 years PPHI's operating ratio has risen above 100% due to challenges at its campuses, including elevated levels of turnover, across all service lines. Offsetting the softer operating performance has been strong net entrance fee receipts, which has kept PPHI's net operating margin -adjusted and coverage consistent with prior years' performance. Fitch also believes that the diversity and size of PPHI's revenues (with approximately \\$65 million in operating revenue, generated at four separate campuses), also help to keep the financial profile stable. September 30, 2015 results show a 103.8% operating ratio and a 13.6% net operating margin - adjusted.

STEADY OCCUPANCY: Over the last four years and through the nine month interim occupancy has remained relatively stable. At September 30, 2015, IL occupancy was 80%, assisted living occupancy was 86%, and skilled nursing was at 90%. In spite of good sales of IL units and strong net entrance fee receipts, IL occupancy has remained flat due to elevated levels of turnover.

CAPITAL SPENDING CONTINUES: Capital spending as a percent of depreciation has averaged 119.2% a year over the last three audited years. Fitch expects this level of spending to continue as PPHI continue to invest in its campuses to keep them marketable in a competitive greater Philadelphia senior living market. Longer term, PPHI may develop a property it owns that is contiguous with Rydal Park, but Fitch does not expect PPHI to issue any additional debt over the next year.

RATING SENSITIVITIES

STABILITY EXPECTED: Fitch expects Philadelphia Presbytery Home, Inc. (PPHI) to continue to produce median level coverage over the rating cycle, supported by its diversity in revenues and campuses, its strong liquidity, and continued investment in its plant. A material and sustained drop off in either liquidity or debt service coverage would be a credit concern and could lead to negative rating pressure.

CREDIT PROFILE

PPHI is part of Presby's Inspired Life, a senior living organization headquartered in Lafayette Hills, PA, with facilities located in and around the greater Philadelphia region. PPHI's obligated group, on which Fitch's analysis is based, is composed of four market rate communities: Rydal Park, Rosemont Presbyterian Village, Broomall Presbyterian Village, and Spring Mill Presbyterian Village, and a management services group. The OG has 474 IL units, 206 personal care units, and 260 skilled nursing beds as of Sept. 30, 2015. The OG had operating revenues of approximately \\$64.8 million in fiscal 2014 (December 31 year end).

Entities outside the obligated group include a large affordable housing portfolio (comprised mostly of HUD housing) and the Bala Foundation, which has approximately \\$32 million in cash and investments and provides approximately \\$1.2 million in support to the OG a year. PPHI's historical support of the other non-OG entities has been minimal and is not a credit concern.

DEBT PROFILE

Total long term debt as of Sept. 30, 2015 is \\$100 million. Overall debt mix is 80% fixed and 20% variable. PPHI has two tranches of bank debt with Citizens Bank (rated 'BBB+/F2' by Fitch). Both were issued in 2013. One tranche for \\$27.8 million is fixed rate (3.75%) and callable by the bank in seven years. The other tranche for \\$22.3 million is variable rate (rate varies but is based off of 70% LIBOR) and callable by the bank in ten years. The bank debt is on parity with the MTI debt and the covenants are the same. In addition, PPHI continues to have two loans totaling \\$15.4 million from its non-obligated affiliate, the Bala Foundation.

PPHI's debt burden is mixed. At Sept. 30, 2015, MADS as a percent of revenue of 10% was better than the median, while debt to net available 7.6x was weaker than the median.

DISCLOSURE

PPHI covenants to submit annual audited information within 120 days of the fiscal year end to the EMMA system, and the first three quarters of unaudited data within 45 days of the quarter end, and the fourth quarter of unaudited data within 60 days of the quarter end to EMMA