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Outlooks Revised To Negative On Various Affordable Senior Living Transactions Due To Pandemic Risk

CENTENNIAL (S&P Global Ratings) April 3, 2020--S&P Global Ratings revised its outlook to negative from stable on 16 long-term debt ratings associated with eight affordable senior living transactions.

"The negative outlook reflects the potentially severe and ongoing impacts associated with the COVID-19 pandemic," said S&P Global Ratings credit analyst Joanie Monaghan. We view the uncertainty regarding the duration of the spread of the coronavirus throughout the country as a health and safety social risk under our environmental, social and governance (ESG) factors. For these transactions, we believe the pandemic presents near-term liquidity pressure to operation and debt service payments and could create long-term downward pressure on credit quality. The outlook revisions follow our updated overall view of all U.S. public finance sectors (see "All U.S. Public Finance Sector Outlooks Are Now Negative" published April 1, 2020). Table 1 lists all credits included in this rating action.

The negative outlooks reflect at least a one-in-three likelihood of a negative rating action over the intermediate term for investment-grade issues (generally up to two years) and over the short term for speculative-grade issues (generally up to one year). Negative outlooks on specific ratings may return to stable on a case-by-case basis in the near-to-medium term if evidence, data, and analysis support the revision.

In our view, affordable rental properties face potential financial stress because significant revenue declines could result from eviction moratoriums, an uptick in operating expenses, and extended vacancies squeezing debt service coverage ratios. At this time, liquidity short falls is the imminent risk. Therefore, transactions that lack sufficient resources and liquid reserves may not cover expenses related to ongoing operations, increased expense related to virus mitigation, and debt service. Further, we believe senior living properties with assisted living and memory care facilities are in a particularly vulnerable position and may see slower lease-ups and unforeseen operating costs. Finally, the private pay nature and lack of government support through a rental subsidy for a majority of senior living transactions further exposes these issues to revenue stress. These additional financial and operational challenges compared to other affordable rental properties supports the negative outlook revision on each senior living rating beyond the sector-wide outlook revision discussed in the article referenced above.

While we believe all affordable senior ratings are susceptible to deterioration of credit quality related to COVID-19, those transactions that lack debt service reserve funds equal to at least 12 months annual debt service for each class of rated debt and lack access to other reliable and sufficient liquidity sources will be the most vulnerable to liquidity risks and susceptible to negative rating action earlier in the outlook period. These transactions, in our view, will likely have to choose between using potentially reduced operating revenues to pay operating expenses and to address health and safety risks, or pay full and timely debt service.

S&P Global Ratings will continue to monitor and evaluate the effects of this fluid and fast-moving situation. Potential negative rating action could be either broad-based or credit specific. We will continue to collect data and have conversations with management teams to properly evaluate information as it becomes available. Therefore, while the outlook period is for one year, further review and rating action on the issues could occur throughout the outlook period, given market conditions and credit-specific information.

Table 1

Revised Outlooks On Affordable Senior Living Ratings
Issue State borrower Rating To From
Christian Care Mesa II, Inc, - Christian Care Mesa II 2014A AZ A Negative Stable
Christian Care Retirement Apartments, Inc., 2016 Project AZ A Negative Stable
Minnesota Senior Living, LLC, - Senior Living Proj 1st Tier MN BBB Negative Stable
Minnesota Senior Living, LLC, - Senior Living Proj 2nd Tier MN B Negative Stable
Minnesota Senior Living, LLC, - Senior Living Proj 3rd Tier MN B- Negative Stable
Leading Life Senior Living, Inc., - Autumn Leaves Project 1st Tier TX BBB+ Negative Stable
Leading Life Senior Living, Inc., - Autumn Leaves Project 2nd Tier TX B+ Negative Stable
Covenant Communities, Inc, - Covenant Communties Inc Proj 1st Tier WI BBB+ Negative Stable
Covenant Communities, Inc, - Covenant Communities Inc Proj 2nd Tier WI BBB- Negative Stable
Great Lakes Senior Communities - Great Lakes Senior Living Communities 1st Tier IL BBB+ Negative Stable
Great Lakes Senior Communities - Great Lakes Senior Living Communities 2nd Tier IL BBB Negative Stable
Great Lakes Senior Communities - Great Lakes Senior Living Communities 3rd Tier IL BB+ Negative Stable
Quality Senior Housing Foundation of East Texas Inc., - Longview, Athens and Winnsboro Communities 1st Tier TX BBB Negative Stable
Quality Senior Housing Foundation of East Texas Inc., - Longview, Athens and Winnsboro Communities 2nd Tier TX BB+ Negative Stable
Quality Senior Housing Foundation of East Texas Inc., - Longview, Athens and Winnsboro Communities 3rd Tier TX BB Negative Stable
St. Anthony Deer Path SLF LLC - St.Anthony and Deer Path Projects 2020 IL A- Negative Stable

This rating action does not apply to 18 additional affordable senior housing ratings, associated with nine affordable senior living transactions in our portfolio (see Table 2). These ratings are already have negative outlooks or are on CreditWatch with developing implications.

Table 2

Affordable Senior Living Ratings With Unchanged Outlooks
Issue State borrower Rating Outlook CreditWatch
4-K Housing, Inc., - Stoney Brook Acquisition 1st Tier TX BB Negative
4-K Housing, Inc., - Stoney Brook Acquisition 2nd Tier TX BB- Negative
4-K Housing, Inc., - Stoney Brook Acquisition 3rd Tier TX B Negative
AE Woodland Towers LLC, - Woodland Towers 1st Tier MI B N/A Developing
AE Woodland Towers LLC, - Woodland Towers 2nd Tier MI B N/A Developing
American Eagle Delaware Holding Company LLC, - Brookdale Portfolio 1st Tier MI BBB- Negative
American Eagle Delaware Holding Company LLC, - Brookdale Portfolio 2nd Tier MI BB Negative
Bethesda Foundation, - Bethesda Projects 1st Tier CO A- Negative
Bethesda Foundation, - Bethesda Projects 2nd Tier CO BBB+ Negative
Canton II, Inc, - The Inn At Patios Proj 1st Tier TX BB- Negative
Canton II, Inc, - The Inn At Patios Proj 2nd Tier TX B Negative
Cardinal Bay, Inc., - Village on the Park/Carriage Inn Proj 1st Tier TX BBB+ Negative
Cardinal Bay, Inc., - Village on the Park/Carriage Inn Proj 2nd Tier TX BB Negative
Cardinal Bay, Inc., - Village on the Park/Carriage Inn Proj 3rd Tier TX BB- Negative
H-Bay Ministries, Inc., - Superior Residences Proj 1st Tier TX BB Negative
H-Bay Ministries, Inc., - Superior Residences Proj 2nd Tier TX B Negative
Pima Cnty Indl Dev Auth, - 2017 Christian Care Tucson AZ A- Negative
Quality Senior Housing Foundation, Inc., - Sanders Glen Proj GA BB+ Negative Developing

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.

Primary Credit Analyst:Joan H Monaghan, Centennial + 1 (303) 721 4401;
Joan.Monaghan@spglobal.com
Secondary Contact:Marian Zucker, New York (1) 212-438-2150;
marian.zucker@spglobal.com

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