DBRS Confirms Leisureworld Senior Care LP at A (low), Stable

DBRS Limited (DBRS) has today confirmed the Series B Senior Secured Debentures (the Debentures) rating of Leisureworld Senior Care LP (Leisureworld or the Company) at A (low) with a Stable trend. Leisureworld continues to exhibit prudent financial management and maintain sound operating results. Leverage and debt service also remain in line with expectations.

Leisureworld maintained solid financial results for year to date (YTD) Q3 2016 as well as for YE2015, benefiting from preferred accommodation rate increases. When normalized for staffing expenses that have been moved from Leisureworld to its parent company and for the seasonality of some expenses, such as utility costs, EBITDA growth YTD Q3 2016 and F2015 is in the neighbourhood of 2.0%, which is consistent with an inflation-linked business such as this. DBRS expects EBITDA to exhibit a long-term average annual growth rate in line with consumer price index, driven by accommodation per diem and preferred accommodation rate increases.

The Company continues to operate the long-term care (LTC) homes at a high level as indicated by the Company’s quality results, which are generally better than the provincial average. There were no changes to the number of residences in either 2016 or to date in 2017. Average overall occupancy has remained consistent with prior years at 98.5% as of Q3 2016 and 98.6% in F2015, reflecting strong demand in the sector and Leisureworld’s proven track record as an efficient LTC operator.

With consistent EBITDA levels, the adjusted debt service coverage ratio (DSCR) stood at 2.7 times (x) YTD Q3 2016 and 2.8x in F2015, in line with expectations at the time of the issuance of the Debentures. The Debentures benefit from a principal reserve fund where contributions are made into the fund at least semi-annually to a predetermined minimum balance, such that the account will have a minimum balance of $45.5 million to be used for redeeming a portion of the outstanding principal at the Debentures’ maturity date in 2021. This feature addresses the need for a meaningful component of principal amortization to the debt structure, given the limited duration of the construction funding received from the Province of Ontario (rated AA (low) with a Stable trend by DBRS) and the finite useful life of the facilities. With consideration of deposits into the principal reserve fund, the pro forma DSCR is approximately 2.8x, which aligns well with the A (low) rating. DBRS notes that a notable increase in future debt requirements which causes a material decline in pro forma adjusted DSCR levels could result in an adverse rating action; however, no such increased borrowing has been formally planned to date.

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 principal methodology is the General Corporate Methodology (Appendix for Leisureworld Senior Care LP), which can be found on dbrs.com under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.