Fitch Ratings has finalized changes to its ratings criteria for not-for-profit continuing care retirement / life plan communities to better reflect the risk profile for rated communities, the company announced Monday.
The adjustments follow a comment period to a draft published this spring. The revisions to criteria are intended to better reflect the unique risks of CCRCs.
CCRCs with more skilled nursing units than independent living units “are more vulnerable to revenue pressures, as they typically have very little pricing flexibility due to their high exposure to governmental payers,” Fitch said previously. Expansion projects also have an effect on determining a community’s revenue defensibility, according to the agency.
Key drivers for rating a CCRC, according to Fitch:
- Revenue defensibility (market assessment; occupancy and waitlist are among the considerations);
- Operating risk (cost management; capital expenditure requirements);
- Financial profile (cash to debt, maximum annual debt service coverage)
The final report reflects changes in the rating methodology, “among them a more nuanced approach to assessing the revenue defensibility” of a CCRC, the ratings agency said in a press release. This approach includes a more specified approach to rating CCRCs that have more skilled nursing facility beds than independent living units.
“Fitch also made a number of clarifying edits in response to market feedback mostly focusing on what constitutes ‘high’, ‘medium’ and ‘low’ probability of project execution under the Capital Plan Risk Matrix,” as well as addressing the “potential impact of certain criteria provisions pertaining to [a CCRC’s] SNF operations,” Fitch said.
Ratings for 12 % of the country’s not-for-profit CCRC could find themselves ‘under criteria observation’ within five business days of criteria publication, Fitch said Monday, compared with its previous estimate of 10%.
In January, Fitch Ratings assigned the CCRC sector a rating of “deteriorating” for the second year in a row.
