Fitch Affirms $25.3MM Residential Resources, Inc. Bonds (PA) at 'BBB-'

Fitch has affirmed the 'BBB-' rating on $25.3 million Allegheny County Industrial Development Authority (Pennsylvania) non-profit lease revenue bonds (Residential Resources, Inc. Project), series 2006. The Rating Outlook is Stable.

The series 2006 bonds are primarily secured by a pledge of lease revenues, a mortgage, and a fully funded debt service reserve fund (DSRF). Additional security is provided by a debt service reserve fund replenishment guaranty by Allegheny County, PA. The replenishment guaranty is limited to an aggregate $2.75 million during the term of the bonds. To date, Residential Resources, Inc. (RRI) has not utilized the DSRF nor has it requested proceeds for the debt service replenishment guaranty.

The 'BBB-' rating continues to be supported by RRI's historically strong profitability and demand for its unique services as well as its sound liquidity relative to expenses. As a supplier of real estate for human service providers, RRI owns and maintains 199 properties in and around Allegheny County, PA. RRI has consistently renewed leases with tenants at renewal rates that exceed 90%. Historically, RRI has benefited from robust operations as evidenced by an operating margin (which includes investment income) that has averaged approximately 11% over the last four fiscal years. This has resulted in improved cash and investment balances, with RRI reporting $2.9 million of unrestricted cash and investments as of June 30, 2007, translating into 314.5 days cash on hand.

The main credit concern is RRI's very high debt burden and operating leverage, which is amplified by relatively limited financial flexibility. Maximum annual debt service (MADS) as a percentage of revenues and debt-to-capitalization for RRI as of fiscal 2007 (June 30) are high at 38.9% and 87.1%, respectively. Moreover, depreciation and interest accounted for approximately 59.3% of total fiscal 2007 operating expenses. RRI's ability to pass along unexpected cost increases to tenants is largely limited by a tenant's ability to absorb higher lease rates with increased funding from governmental payors. In general, reimbursement rates from the government have been modest and generally lag the period of the increased cost.

The Stable Rating Outlook reflects Fitch's believe that RRI will continue to operate profitably given the high demand for its services as illustrated by historically high renewal rates and a long waiting list of Allegheny County residents seeking housing such that is provided by RRI.

RRI owns and maintains 199 facilities that house 962 residents, for individuals with disabilities in and around Allegheny County. RRI does not provide medical or psychiatric services to its tenants. In 2007, RRI had total operating revenues of $5.1 million. RRI has covenanted to disclose to the nationally recognized municipal securities information repositories (NRMSIRs) annual audited financial statements within 180 days of each fiscal year-end, and quarterly disclosure within 45 days of each quarter-end.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Article Source: http://www.share.onlypunjab.com

For more information, please visit at www.fitchratings.com

Please Rate this Article

5 out of 54 out of 53 out of 52 out of 51 out of 5 

Not yet Rated