Fitch Upgrades Greenspring Village's (VA) Rev Bonds to 'A+'; Outlook Stable

Fitch Ratings upgrades the $29,570,000 Fairfax County Economic Development Authority bonds, series 2006 A, issued on behalf of Greenspring Village, Inc. (Greenspring) to 'A+' from 'A'.

The Rating Outlook is Stable.

SECURITY

Bondholders are secured by a gross revenue pledge and a mortgage and debt service reserve fund.

KEY RATING DRIVERS

ROBUST LIQUIDITY GROWTH DRIVES UPGRADE: The upgrade is driven by Greenspring's growth in its absolute level of unrestricted cash and investments, up 55% since 2011 to $125 million at Feb. 28, 2015. This represents 646 days cash on hand (DCOH), near Fitch's 'A' category median of 692 DCOH. Cash-to-debt (232%) and cushion ratios (32x) are well above the category medians.

STRONG PERFORMANCE DRIVES UPGRADE: The upgrade is further supported by Greenspring's continued strong performance in 2013 and 2014, highlighted by debt service coverage in 2014 (unaudited figures) of 6.1x (including entrance fee revenue) and revenue-only maximum annual debt service (MADS) coverage of 4.4x. These metrics are outstanding compared to 'A' category medians of 3.7x and 1.2x, respectively.

CAMPUS-WIDE CAPITAL PROGRAM COMMENCING: Greenspring is beginning a substantial seven-year $72 million campus-wide capital program in the second quarter of 2015 (2Q'15), with an estimated $48 million outlay through 2016. Clarity on the capital program mitigates concerns about pressures on occupancy and performance, as there is no fill-up risk with the associated campus enhancement projects.

CONSISTENTLY HIGH OCCUPANCY: High occupancy, above 95% in all levels of care, has supported excellent cash flow and results from management's initiatives including lifecycle campus investments, apartment upgrades upon turnover, use of an outside real estate agent and select use of a promissory note program.

SOLID AREA DEMOGRAPHICS: Greenspring benefits from a favorable service area with a diverse economic base and high wealth and income levels. Competition is manageable and Greenspring's entrance fee pricing is competitive and within range of local area housing prices.

RATING SENSITIVITIES

UNEXPECTED OPERATIONAL DOWNTURN: The rating is sensitive to unexpected negative performance in core operations.

CREDIT SUMMARY

Greenspring is located in Springfield, VA, which is approximately 14 miles southwest of Washington D.C. in Fairfax County, rated 'AAA', Stable Outlook by Fitch. The facility is a type-C continuing care retirement community with 1,404 independent living units (ILUs) in three neighborhoods, 144 assisted living units (ALUs) and 136 skilled nursing (SN) beds. Greenspring had total unaudited operating revenues of $86.3 million in 2014.

CONTINUED STRONG PERFORMANCE DRIVES LIQUIDITY GROWTH

Greenspring's strong operating track record has continued with very low operating ratios of 85.8% in 2013 and 82.7% in 2014 (unaudited), comparing favorably to Fitch's 'A' category median of 97.1%. The strong operating performance generated excellent revenue-only debt service coverage of 4.4x in 2014, significantly better than the 'A' category median of 1.2x. Debt service coverage including net service entrance revenues is robust at 6.1x in 2014.

Greenspring's strong operating performance has resulted in unrestricted liquidity growth of over $35 million from 2011 to 2014, adding 191 DCOH to the balance sheet and improving cash-to-debt to an outstanding 237%. Greenspring's liquidity metrics now largely exceed Fitch's 'A' category medians and liquidity has grown into a credit strength.

SUBSTANTIAL CAPITAL PROJECT

Greenspring is beginning a $72 million, seven-year major campus capital spending program in 2Q'15. The planned projects include renovation of the health center, a new aquatic center and community building, renovation of the dining spaces, and other campus upgrades. Fitch believes that these projects are unlikely to materially impact operations or occupancy and will enhance campus marketability.

Management is planning to fund the capital program from cash flow and equity contributions. However, Greenspring's board has approved the option to finance these projects. Fitch believes that Greenspring's financial and operational profile is strong enough to finance the capital improvement plan through operations or debt at the higher rating level. Greenspring will also continue ordinary annual capital investment, projected to be $7 million to $8 million annually.

CONTINUED STRONG OCCUPANCY

Driving the strong operating performance has been Greenspring's high occupancy across all levels of care. ILU occupancy has been above 98% since 2007 and stood at 98% as of Feb. 28, 2015. ALU and SN occupancy have also been excellent, generally in the high 90% range since 2007.

Supporting the high ILU occupancy has been Greenspring's use of an outside real estate agent to assist incoming residents in the sale of their homes and a promissory note program. The promissory note balance as of Feb. 28, 2015 was $9.5 million. None of the promissory notes are past 90 days due, and management reports that most settle within the first two months. Greenspring's waitlist remains strong at over 1,200 indicating robust demand for services.

FAVORABLE SERVICE AREA DEMOGRAPHICS

Greenspring benefits from its location in economically favorable Fairfax County, which enjoys a diverse economic base, highly educated labor force, and above-average wealth and income levels.

CONSERVATIVE DEBT PROFILE

Greenspring's debt profile has become more conservative with the placement of $25.6 million in variable-rate demand bonds (series 2006B) with SunTrust in 2014 (rated 'BBB+', Positive Outlook by Fitch). This privately placed debt is not rated by Fitch but considered in the analysis. The placement is synthetically fixed with a swap with matching notional and tenor and negative $797,000 mark-to-market valuation as of Dec 31, 2014. Refinancing resulted in a 9% reduction in MADS, to $3.7 million, and 100% fixed-rate debt profile. Total debt was $54 million as of Feb. 28, 2015.

Greenspring covenants to provide audited annual financial information to the Municipal Securities Rulemaking Board's EMMA system and to bondholders. Greenspring also covenants to provide quarterly financial information including balance sheet, income statement and cash flow statements, but no management discussion and analysis.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria', June 16, 2014

--'Not-for-Profit Continuing Care Retirement Communities Rating Criteria', July 24, 2014

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

Not-for-Profit Continuing Care Retirement Communities Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752470

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983534

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