OREANDA-NEWS. Fitch Ratings has affirmed the 'A-' rating on $18,235,000 series 2012 health care facilities revenue refunding bonds issued by the Orange County Health Facilities Authority on behalf of Mayflower Retirement Center, Inc. (Mayflower).

The Rating Outlook is Stable.

SECURITY

Debt payments are secured by a pledge of the gross revenues of the obligated group and a mortgage on all property, excluding only the property that was purchased and is being held for potential growth. In addition, a fully funded debt service reserve fund provides additional security for bondholders.

KEY RATING DRIVERS

SOLID RECOVERY: Mayflower's operating and financial results improved sharply in 2014 and 2015 compared to 2013, reflecting stronger net entrance fee receipts. Occupancy in independent living (IL) is returning to pre-2013 levels, and census in assisted living (AL) and skilled nursing remain solid. IL move-ins increased to 44 and 40 in 2015 and 2014, respectively, compared to 24 sales in 2013.

SOLID LIQUIDITY: At Dec. 31, 2015 (unaudited interim results), unrestricted cash and investments totaled $24.2 million, relatively unchanged from Fitch's last review. Days cash on hand of 470 lags the median of 681 days, but 134.7% cash to debt and 19.7x cushion ratio compare favorably against respective 'A' medians of 125.1% and 18.5x.

LIGHT DEBT BURDEN: Maximum annual debt service (MADS) equated to 5.5% of 2015 revenue, considerably better than Fitch's 'A' median of 9.2%. MADS coverage of 7x in 2015 was also very good against the median of 3.1x. However, revenue-only coverage was weak at 0.1x compared to the median of 1.5x, illustrating heavy reliance on entrance fee receipts. All debt is fixed with level debt service, which Fitch views favorably.

RATING SENSITIVITIES

STRATEGIC PLANNING UNDERWAY: Mayflower is updating its strategic plans with the arrival of a new CEO, which may result in major capital projects. Key focuses could include updating the skilled nursing facility, expanding IL, and adding memory care and other services. Fitch will evaluate the impact of any major capital projects and possible additional debt issuance once plans are finalized.

CREDIT PROFILE

Located on approximately 30 acres in Winter Park, Florida, Mayflower is a type-A continuing care retirement community with 268 IL units (28 villas and 240 apartments), 31 assisted living units (all private), and 60 skilled nursing beds (26 semi-private and eight private). Mayflower generated $22.3 million in total operating revenue in the fiscal year ended Dec. 31, 2015 (unaudited interim results).

Strategic Planning Underway

Following the retirement of the former CEO, a new CEO arrived in August 2015 and kicked off a strategic planning process. Previous plans to expand skilled nursing are being reassessed, and remain the highest priority. Additional areas of consideration include adding amenities, IL units, and memory care.

Capital spending has been somewhat heightened, averaging 123.9% of depreciation over the last three years. The projects many not necessarily result in additional debt. In the immediate term, capital spending is expected to be modest with $2.9 million budgeted for fiscal 2016.

Strong 2014 and 2015 Results

IL occupancy was a sound 94% in 2015, steadily rising from a recent low of 92.2% in 2013, a particularly weak year affected by a combination of heightened IL turnover, temporarily elevated competition, extensive renovations, and changes in marketing team members. While occupancy has not recovered to pre-2013 levels at above 95%, turnover activity has generated a healthy level of cash flow, with net entrance fee receipts totaling $8.5 million in 2015 compared to $2.7 million in 2013.

Reflecting improved operations, profitability was robust in 2015, with a net operating margin-adjusted of 31.5% compared to the median of 22.2%. However, operating ratio of 104.5% and net operating margin of negative 1.4% were significantly weaker than the respective medians of 94% and 7%, reflecting Mayflower's type 'A' declining balance lifecare contracts.

Fitch recognizes the increase in Lifecare residents in skilled nursing has been pressuring revenues, as Medicare is the highest payor for skilled nursing services. However, overall revenues generated from skilled nursing have grown over the last two years, and remains manageable. Management's active plan to manage capacity and demand is viewed positively.

Solid Liquidity

Despite weak investment performance, liquidity remains solid. At Dec. 31, 2015, unrestricted cash and investments of $24.2 million equated to 470 days, 134.7% cash to debt, and 19.7x cushion ratio.

Robust Debt Service Coverage

Mayflower's debt burden is light with MADS equating to a low 5.5% of revenues and debt to net available of just 2.1x as compared to the respective 'A' category medians of 9.2% and 4.3x. With the recovery in net entrance fee receipts, MADS coverage was a strong 6.0x and 7.0x in 2014 and 2015, respectively, compared to 2.3x in 2013. While not atypical for a Type 'A' CCRC, Mayflower remains particularly reliant on entrance fees, as reflected by its low revenue only coverage of 0.1x in 2015.

DEBT PROFILE

As of Dec. 31, 2015, Mayflower has outstanding one series of fixed rate bonds totaling $18.2 million. Debt service is level at $1.2 million through 2042, and no swaps are outstanding.

DISCLOSURE

Mayflower covenants to provide annual continuing disclosure to EMMA no later than 150 days after the end of fiscal year and quarterly disclosure no later than 45 days after each quarter's end.