Fitch Affirms Hebrew Home of Greater Washington (Maryland) Bonds at 'A-'; Stable Outlook
NEW YORK-(Business Wire)-September 17, 2009 - Fitch Ratings has affirmed the 'A-' rating on approximately $12.2 million Maryland Health and Higher Educational Facilities Authority revenue bonds (Hebrew Home of Greater Washington), series 2002. The Rating Outlook is Stable.
The affirmation is based on Hebrew Home of Greater Washington's (Hebrew Home) strong financial position, excellent demand for its services, demonstrated philanthropic support of the local community, and solid debt service coverage. Hebrew Home's liquidity remains strong with unrestricted cash and investments of $48.7 million as of the six month interim ended June 30, 2009, which translates to 273 days cash on hand, 18.7 times (x) cushion ratio, and 142% cash to debt. As the only Jewish affiliated nursing home in the suburban Washington, D.C. region, demand for Hebrew Home's services remains robust. Occupancy in the 519-staffed skilled nursing beds has remained strong at 96% through the four month interim ended April 30, 2009 and 94.4% in fiscal 2008. Hebrew Home's 500 independent living units (Revitz and Ring House) were 97% occupied as of April and 98% at fiscal year end. The 60-unit Landow House assisted living facility was 92% occupied as of April and 97% at fiscal year end. The rating also recognizes Hebrew Home's exceptional fund raising capabilities as total contributions and bequests have been strong in recent years and in 2008 totaled $7.2 million. Given that Hebrew Home does not charge entrance fees, maximum annual debt service (MADS) coverage less advanced fee revenue in fiscal 2008 was strong at 2.3x as compared to the 'A' category median of 1.5x. In the six month interim, debt service coverage was negative 0.6x as a result of $4 million in realized investment losses; these losses are excluded from the bond coverage calculation. Excluding the investment losses MADS coverage was 2.6x.
Primary credit concerns include the historical reliance on non-operating income to generate positive excess margins and heavy exposure to Medicaid payors, which comprises 68.5% of net patient revenue in the skilled nursing facility (SNF) and leaves Hebrew Home vulnerable to potentially adverse governmental budgeting and legislature. Prior to fiscal 2008, Hebrew Home utilized investment income to offset losses by core operations and generate positive excess margins. Recently though, management has taken various steps to decrease this reliance, including a re-engineering of supplies, contracts, and staffing which resulted in income from operations of $1.75 million in fiscal 2008 (as compared to negative $1.6 million in the prior year). Management expects to realize the full effects of this process in 2009 and through the six month interim period, operating income was $842,000. However, in the interim period, Hebrew Home realized $4 million in investment losses resulting in a net loss of $3.2 million. While Fitch believes that healthy cash and investment reserves and philanthropic support provide adequate assurance of long-term financial stability, multiple periods of poor investment results may hamper liquidity and bottom line profitability.
The Stable Rating Outlook is based on Hebrew Home's solid demand for services as previously noted and improvements to operating profitability.
Located in Rockville, Maryland (approximately 20 miles northwest of Washington, D.C.), Hebrew Home is a multi-level provider with 556 nursing beds (519 staffed beds), 60 assisted living units, and 500 independent living units. Total revenue in fiscal 2008 was $71.7 million. Hebrew Home covenants require that they provide bondholders with annual audited and quarterly financial statements. Fitch notes that quarterly disclosure includes a balance sheet and income statement for the obligated group only, and does not include management discussion and analysis, a cash flow statement, and utilization statistics. Hebrew Home's financial statements are disseminated through the NRMSIRs.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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