Last week I wrote about Fitch Ratings updates to their non-profit CCRC rating criteria. The expectation with the changes was that twelve percent of the rated CCRCs could be subject to Under Criteria Observation (UCO). What has occurred as a result of Fitch Ratings Update is that eighteen CCRCs have been impacted, falling under UCO. My post from last week is available here: https://rhislop3.com/2024/08/23/fitch-non-profit-ccrc-ratings-update/
As of this time last year, Fitch Ratings maintained public ratings on 156 CCRCs. The 2024 median data has yet to be released. In 2023, the investment-grade (IG) medians encompassed 108 providers, and the below-investment-grade (BIG) medians covered 43 communities. From 2016 to 2021, the number of ratings consistently increased, with 99 IG and 28 BIG ratings recorded in 2016. Yet, there was a slight decrease in the number of ratings in 2022, mainly attributed to mergers, consolidations, and bond restructuring activities.
Credit ratings serve as indicators of the probability of repayment according to the terms of issuance. In certain instances, Fitch may incorporate additional factors, such as rating to a standard higher or lower than what is suggested in the obligation’s documentation.
Fitch’s credit rating scale categorizes issuers and issues from ‘AAA’ to ‘BBB’ for investment grade, and ‘BB’ to ‘D’ for speculative grade or below investment grade. Additionally, a plus (+) or minus (-) is added to ratings from ‘AA’ to ‘CCC’ to indicate the relative likelihood of default or recovery for the issues. Anyone interested in the technical rating details can access Fitch’s Rating Definitions document at Rating Definitions (fitchratings.com)
In addition to Fitch, Standard and Poor’s (S&P) provides ratings for CCRCs, though less common than Fitch. From a project between investment banking firm Ziegler, accounting firm Baker Tilly and the accreditation agency (voluntary) CARF, a report was issued on CCRC financial ratios and trends. The report is available (most recent, 2023) here:2023FinancialRatiosTrendAnalysis
From a separate data set from Ziegler, covering 132 borrowers, 62 had investment grade rated (“BBB-” or greater rating from S&P or Fitch) bonds as of July 2023. The applicable financial ratios and other data points between the two groups (investment grade v. non-investment grade) are below.
According to Fitch, although the criteria changes may impact the ratings (the 18 CCRCs), it does not mean that all ratings marked as UCO will change. Being placed on the UCO list does not reflect a change in the issuer’s fundamental credit profile, nor does it influence the current rating outlooks or watch statuses. Fitch intends to reassess all ratings labeled as UCO promptly, and at the latest within six months from the criteria publication date.
The eighteen CCRCs that identify now as Under Criteria Observation (UCO) are,
- Acts Retirement–Life Communities in Pennsylvania
- American Baptist Homes of the West in California
- Brookhaven at Lexington Retirement Community in Massachusetts
- Casa de las Campanas properties in California
- Covenant Living Communities and Services in Illinois
- Evangelical Homes of Michigan
- The Evergreens in New Jersey
- Front Porch Communities & Services in California
- HumanGood California Obligated Group in California
- John Knox Village in Florida
- Lenbrook Square in Georgia,
- Lifespace Communities, Linden Ponds Inc. in Massachusetts
- Mary’s Woods at Marylhurst in Oregon
- Mt. San Antonio Gardens in California
- National Senior Communities Obligated Group in Virginia
- Northcrest Inc. in Iowa
- Riverview Retirement Community in Washington
- Waverly Heights Ltd. properties in Pennsylvania
- Willow Valley Communities in Pennsylvania.