OREANDA-NEWS. Fitch Ratings has affirmed the 'A-' rating on following bonds issued on behalf of Casa de las Campanas, Inc. (Casa):

--$49,650,000 ABAG Finance Authority for Nonprofit Corporations Insured Revenue Bonds, Series 2010.

The Rating Outlook is revised to Negative from Stable.

SECURITY

The bonds are secured by a gross revenue pledge, first mortgage, and a debt service reserve fund.

KEY RATING DRIVERS

INCREASE IN DEBT: The Negative Outlook reflects the expected issuance of $39 million in debt, after a $19 million debt issuance in 2014, which in total will nearly double Casa's long-term debt since fiscal year (FY) 2014 (July 31 year-end). The 2016 debt will be issued to fund Phase II of a three-phase master facility plan.

SIZABLE CAPITAL PLANS: Casa will construct a new 72-bed skilled nursing center, with more private rooms and a larger therapy space than Casa's current skilled nursing center as part of Phase II of the master facility plan. The cost will be approximately $41 million. The Negative Outlook reflects a larger size to the Phase II cost and a sooner start than Fitch expected. Casa's solid financial profile and good market position are key factors in Fitch not downgrading the rating at this time.

SOLID FINANCIAL PROFILE: In FY2015, Casa had a 97.8% operating ratio, a 36% net operating margin-adjusted, and 3.1x coverage, all good for the rating level. Independent living (IL) occupancy remained strong as well at 95%. Pro forma maximum annual debt service (MADS) coverage, which includes the additional debt, averaged 2.8x over the last four audited years, relative to Fitch's 'A' median of 3.1x. Pro forma coverage fell to 1.7x through the nine month interim period, but Fitch expects this figure to improve by year end.

AGGRESSIVE INVESTMENT ALLOCATION: Casa has approximately 60% of its unrestricted investments allocated to either equities or alternative investments, which Fitch views as aggressive. Casa's balance sheet has been volatile as a result.

RATING SENSITIVITIES

NEGATIVE OUTLOOK: The Negative Outlook reflects the stress that the cost and related debt of Phase II of Casa de las Campanas' (Casa) master facility plan have put on Casa's credit profile. Over the next 12 to 36 months, a weakening of performance or a material drop in liquidity could result in a downgrade.

PHASE III EXPANSION: Over this time period, Fitch expects to gain more clarity on the phase III IL unit expansion, which is expected to total approximately 60 additional units and include a dementia/assisted living (AL) component. Depending on the final structure of the financing and Casa's financial profile at that time, there could be negative rating pressure.

CREDIT PROFILE

Casa de las Campanas is a type-A continuing care retirement community (CCRC) located in Rancho Bernardo, CA (approximately 25 miles north of San Diego). The community consists of 376 ILUs, 45 AL units, 27 assisted living dementia care units and 99 skilled nursing beds. Casa has been managed by Life Care Services since 1997.

In fiscal year ended (FYE) July 31, 2015, Casa generated total operating revenues of approximately $37.5 million.