Senior living sector enjoying better credit ratings, access

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Dan Hermann
Dan Hermann
Halfway through 2012, senior living providers are having a better time securing credit in order to expand and are seeing better credit rankings.

Credit rating upgrades outpaced rating downgrades in the first six months of the year. FitchRatings, Standard and Poor's, and Moody's Investors Service had four upgrades and three downgrades collectively, and 51 ratings were affirmed with no change.

That means that 2012 is shaping up better than last year, which had a total of six upgrades and nine downgrades, Ziegler's Dan Hermann says.

Upgrades generally reflect how borrowers have been able to improve operating performance, build liquidity and gain debt coverage, he said.

“It's gradually been building, and the bank market has been very vibrant,” he said. “Stronger providers have had access to capital. Credit spreads are coming down, and there's been a strong demand from investors for senior living.”

Nearly $600 million of rated senior living debt has been issued so far in 2012, versus $236 million for all of 2011, according to Thomson Financial Securities Data and Ziegler Investment Banking Research. There's been a low interest rate for many senior living borrowers of around 4%.

“The big question for many of our clients is what do you want in terms of a mix of low-cost fixed or very low-cost floating rate debt,” Hermann said.

Ziegler expects to underwrite an additional $600 million of rated, unenhanced fixed-rate debt by the end of 2012.

That said, it's not all good news for the senior living sector: Five outlooks from the primary credit rating agencies were revised negatively. One reason for that is the agencies factor in debt, even if it reflects expansion, he said.
Still, “there has been deterioration in credit for a few, and some may have slipped on their ILU [Independent Living Unit] occupancy rates,” Hermann cautioned.
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