DBRS Confirms Leisureworld Senior Care LP at A (low)

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. 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 in 2014, benefiting from regular resident co-payment and preferred accommodation rate increases. Although EBITDA declined by 2.4% to $37.0 million in 2014 from the previous year, it rebounded by 13.7% in Q3 2015 year-to-date from the same period the year before, primarily as a result of increasing private premiums and proficient management of expenses from operations and reducing administrative costs. DBRS expects EBITDA to exhibit a long-term average annual growth rate in line with CPI, driven by resident co-payment and preferred accommodation rate increases.

The Company continues to operate the 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 facilities in 2014 and so far in 2015. Average overall occupancy has remained consistent with prior years at 98.6% in 2014, reflecting both strong demand in the sector and Leisureworld’s proven track record as an efficient long-term care operator.

The Company demonstrated an improving interest-only debt service coverage ratio (DSCR). The interest-only DSCR stood at 4.7 times in 2014, as EBITDA levels increased and interest expense declined with the issuance of the Series B Debentures.

Adjusted DSCR declined in 2014 resulting from an increase in debt service, as principal reserve fund deposits starting in 2014 were considered debt service. With improved EBITDA levels, the adjusted DSCR increased to 2.8 times in Q3 2015. 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 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. With consideration of deposits into the principal reserve fund, the pro forma DSCR is 2.8 times, which strongly aligns with the A (low) rating.

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.

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

The applicable methodology is Rating Public-Private Partnerships, which can be found on our website 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.