S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Senior Livingsystem’s credit standing can be enhanced by geographic,financial, and product line dispersion.When rating systems, Standard & Poor’s evaluatesthe extent to which these credit-enhancing qualitiesexist. Key rating considerations also include thesystem’s structure, management’s fiscal and administrativephilosophy, and overall system level financialtrack record—which naturally reflects anyeconomies achieved through the consolidation offinancial and management resources.ManagementStandard & Poor’s analysis of the organization andmanagement of a CCRC is extensive. While themanagement strength and expertise of board membersin the industry has grown significantly, thisarea was at one time a significant weakness. A sitevisit and tour of the facility and service area areusually required for all proposed financings.Standard & Poor’s representatives typically meetwith key members of the administration and board,and management company (if under independentmanagement contract). It is also desirable for representativesof the sponsoring organization to attendthis meeting to discern their role in, and commitmentto, the continuation of the enterprise.An organization’s track record is one strong indicatorof management’s ability and the board’s rolein oversight. However, similar to the acute care sector,senior living has been impacted by outside pressuressuch as economic forces, rising insurancecosts, reimbursement pressure and staffing challengesin skilled nursing, to name a few.Standard & Poor’s analysis of management seeks todetermine whether the management team exhibitsthe depth and experience to identify and react toupcoming challenges, to budget effectively, monitorand control financial and personnel resources, anddevelop and implement a dynamic strategic plan toenhance the overall health of the organization.Management’s ability to assess its institution’sstrengths and weaknesses and to develop soundstrategies to enhance the institution’s competitiveposition is crucial to continued success. In meetingswith Standard & Poor’s, management teams shouldbe prepared to discuss these topics in detail. Theprovider’s management, information, and capitalbudgeting systems should be appropriate for thesize, type, and complexity of the institution.Standard & Poor’s discusses with management thetypes and frequency of monitoring and reporting tothe staff and to the board of trustees. Credit considerationsinclude the organization’s:■ Mission;■ Governance structure and financial goals;■ Compliance procedures with regulatoryauthorities;■■■Accreditation;Financial planning and budget preparation; andRole of the Board in reviewing and providinginput into the issues noted above.Demand, Market Position And DemographicsDemand is a key indicator of the financial health ofa CCRC, and demand is driven by both competitivecharacteristics of a facility (the attractiveness of theproduct, the service offerings and amenities, as wellas pricing), and the demographics and economiccharacteristics of the service area. In this regard,Standard & Poor’s evaluates the appropriateness ofthe CCRC’s marketing program, product offeringsand pricing relative to service area characteristics.Management and/or its financial representativeswill be expected to prepare a competitive marketprofile of existing and proposed CCRCs and otherorganizations that could be viewed as competitorsin the service area, including stand-alone assistedliving, skilled nursing facilities, or other senior residentialcommunities. The analysis should includecensus by contract and/or unit type and shouldindicate the fees in effect for each major type ofcontract or service offered. Area population trends,per capita wealth and income levels, as well asmedian home prices are also part of the analysis.Additionally, the relation of a project’s entry fees toarea median home prices, as well as trends in thereal estate market, are explored.In addition to service area and competitive information,Standard & Poor’s reviews a range of operatingstatistics, including occupancy by level ofservice, unit turnover rates (due to move-outs anddeaths), and fill-up rates of any new units, as thesemeasures are also indicators of a facility’s demandand desirability.Contract TypesThere are a variety of important financial factorsthat Standard & Poor’s examines in addition to anorganization’s audited financial statements andratios. These factors can influence how financiallystrong the institution must be to offset certain risks.For example, three main contract types are used byCCRCs, either singularly or, more recently, in combination.However, certain contract types are riskierthan others. The first type is known as a Type A, orlife-care contracts. The distinguishing feature of thiscontract type is that the resident pays one monthlyfee regardless of the level of service received (i.e.,whether the patient is in independent or assisted livingor skilled nursing). Type A contracts pose thehighest level of risk, as the organization must managethe cost of resident care effectively with morelimited ability to recoup costs through higher fees.For all providers, entrance requirements and screen-www.standardandpoors.com163