DBRS Confirms Rating of Leisureworld Senior Care LP

DBRS Limited (DBRS) has today confirmed the Series B Senior Secured Debentures rating of Leisureworld Senior Care LP (Leisureworld or the Company) at A (low) with a Stable trend. DBRS has also discontinued the rating on the 4.814% Series A Senior Secured Debentures after repayment of these bonds in February 2014. Leisureworld continues to exhibit prudent financial management and is expected to sustain sound operating results. Leverage and debt service also remain in line with expectations at the time of the refinancing in February 2014.

Leisureworld maintained solid financial results in 2013, benefitting from regular per diem government funding and preferred accommodation rate increases. EBITDA of $37.9 million in 2013 improved by 3.1% year-over-year. Average overall occupancy has remained consistent with prior years at 98.8% in 2013, reflecting both strong demand in the sector and Leisureworld’s proven track record as an efficient LTC operator. EBITDA declined by 5.6% in H1 2014 from the same period the year before, primarily as a result of one-time adjustments otherwise, EBITDA would have been flat year over year. DBRS expects EBITDA to exhibit a long-term average annual growth rate in line with CPI, driven by government funding and preferred accommodation rate increases.

The $322 million Series B debentures issued in February 2014 to refinance the Series A debentures and to pay early redemption costs resulted in a growth in adjusted debt to $321.6 million, up 8.5% from $296.5 million at year-end 2013. The new debentures incorporate a principal reserve fund where contributions are made into the fund at least semi-annually to a predetermined minimum balance, such that at the maturity date of the debentures in 2021, the account will have a minimum balance of $45.5 million to be used for redeeming a portion of the outstanding principal. This feature addressed the need for a meaningful component of principal amortization to the debt structure to reflect the limited duration of the construction funding received from the Province of Ontario (the Province; rated AA (low), Stable) and the finite useful life of the facilities. As such, the pro forma debt service coverage ratio (DSCR) is 2.5 times, which more closely aligns with the A (low) category.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Base General Methodology for Corporate Companies (Appendix 1), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.