DBRS Confirms Leisureworld Senior Care LP at A (low) with a Stable Trend

DBRS Limited (DBRS) confirmed the rating of the Series B Senior Secured Debentures (the Debentures) 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.

The Company continues to operate its 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. Leisureworld reported solid financial results for year to date (YTD) Q3 2017 as well as for YE2016, benefiting from preferred accommodation rate increases and high occupancy. Average overall occupancy increased marginally to 99.0% as of Q3 2017, from 98.7% in F2016, reflecting strong demand in the sector and Leisureworld’s proven track record as an efficient LTC operator. EBITDA continued to grow at a steady pace, with EBITDA margin improving to 13.1% during F2016 and 14.0% in Q3 2017, from 12.9% in F2015, on account of an increase in resident co-payment rates and preferred accommodation rates. There were no changes to the number of residences in either 2017 or to date in 2018.

DBRS notes that the demand for LTC homes continues to remain strong with a waitlist of approximately 32,000 LTC beds, supported by favourable demographics. DBRS expects EBITDA to exhibit a long-term average annual growth rate in line with the consumer price index (CPI), driven by increases in per diem accommodation rates and preferred accommodation rates.

With consistent EBITDA levels, the adjusted debt service coverage ratio (DSCR) stood at 2.8 times (x) YTD Q3 2017 and 2.7x in F2016, 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. A rating upgrade is considered unlikely at this time, given the fairly tight funding envelope within which Leisureworld operates and its limited ability to grow revenues and the refinancing of its Debentures in 2021. 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 principal methodology is General Corporate Methodology, which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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