OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB' rating on the following bonds issued on behalf of The Blakeford at Green Hills (Blakeford):

--\$29.4 million Health and Educational Facilities Board of the Metropolitan Government of Nashville and Davidson County, TN revenue refunding bonds, series 2012

The Rating Outlook is Stable.

SECURITY

Debt payments are secured by a pledge of the gross revenues of the obligated group, a mortgage and a fully funded debt service reserve fund. The obligor is The Blakeford at Green Hills Corporation.

KEY RATING DRIVERS

MODEST 2014 CASH FLOW: Blakeford's thinner net entrance fee receipts and softer operating performance in 2014 produced a 17.4% net operating margin (NOM)-adjusted, relative to Fitch's 'BBB' category median of 20.4%, dropping maximum annual debt service (MADS) coverage to 1.6x from 2.0x in 2013. However, net entrance fee receipts improved through the first quarter of 2015, resulting in a stronger NOM-adjusted of 28.6% and coverage of 2.7x.

SIZABLE SKILLED NURSING COMPONENT: Blakeford's large number of skilled nursing beds (83) relative to independent living (IL) units (124) enables it to accept a large percentage of non-resident skilled nursing patients. Fitch views Blakeford's strong management of its skilled nursing facility (SNF) as a credit positive. The SNF supports a very good operating ratio (averaged 90.3% over the last four audited years) and solid revenue-only debt service coverage of 1.3x in fiscal 2014 compared to the 'BBB' category median of 0.9x. The strong revenue only coverage is unusual for a Type 'A' and eases the pressure on net entrance fees receipts.

STRONG IL OCCUPANCY AND MARKET POSITION: Blakeford's affluent service area, proximity to Vanderbilt University, and limited Type-A competition, contribute to its strong IL occupancy, 96% in 2014. Occupancy of 86% in its assisted living units (ALU) and 89% in its SNF remained good.

ADEQUATE LIQUIDITY: Blakeford's \$16.3 million in unrestricted liquidity at March 31, 2015 equated to 361 days cash on hand (DCOH), 54.9% cash to debt and a 7.9x cushion ratio, compared to Fitch's medians of 408 days, 60.2% and 6.9x, respectively. Cash growth has been flat over the last two years, reflecting investments in service line expansions.

RATING SENSITIVITIES

OPERATING STABILITY EXPECTED: Fitch expects Blakeford to produce cash flow results that will support solid debt service coverage and maintain its liquidity position over the near to medium term.

POTENTIAL EXPANSION PROJECT: Blakeford is contemplating an independent living/assisted living expansion and repositioning project that could begin in 2016. Total project cost is currently estimated to be between \$25 and \$35 million, the majority of which is expected to be funded by debt. Fitch will evaluate the impact of Blakeford's expansion and connected debt issuance closer to the time of issuance. However, Fitch believes Blakeford has limited debt capacity at the current rating level, and a large debt issuance, without an influx of stronger cash flows, may impact the rating.

CREDIT PROFILE

Located in the Green Hills section of Nashville, Tennessee, Blakeford is a type-A continuing care retirement community with 124 independent living units (ILUs), 60 assisted living units and 83 skilled nursing facility units. In 2014, Blakeford reported total operating revenues of \$17.9 million.

FINANCIAL AND OPERATING OVERVIEW

Blakeford's profitability continues to be supported by strong operations at its SNF (approximately 50% of its total operating revenues come from skilled nursing). Blakeford's operating ratio was a solid 91.4% in 2014, which compares favorably to Fitch's 'BBB' category median of 97.2%. The operating ratio is particularly strong for a Type 'A' facility. Blakeford continues to grow its short term rehabilitation service line with approximately a third of Blakeford's payor mix being Medicare at year-end 2014, compared to 25% in 2013. Blakeford does not accept Medicaid.

However, weaker net entrance fee receipts (\$654,000) in 2014 resulted in a softer 17.4% NOM-adjusted, down from 21.6% in the prior year. The thinner net entrance fee receipts resulted in a lower 1.6x MADS coverage, below Fitch's 'BBB' median of 2.0x. However, revenue only coverage remained solid at 1.3x in the same year. A key credit strength at the current rating level is Blakeford's revenue only coverage, which has averaged 1.5x over the last four audited years.

Net entrance fee receipts improved through the first quarter of 2015, resulting in a stronger NOM-adjusted of 28.6% and debt service coverage of 2.7x, both of which were favorable to Fitch's medians. Revenue only coverage also improved to a strong 1.8x through the same time period.

Liquidity has remained flat over the last two years in spite of positive cash flows. Investments in Blakeford's home health division and a new CCRC without walls, which is outside the obligated group, have impacted the liquidity growth. However, management reports that home health is cash flowing positive, and Fitch believes that the service will be accretive to Blakeford over the longer term.

STRONG OCCUPANCY AND MARKET POSITION

Blakeford has a solid reputation in a favorable market area, which is characterized by a robust housing market and above-average socio-economic indicators. Occupancy continues to be supported by the service area demographics, as well as Blakeford's clinical reputation. Type-A competition is limited in the market place and Blakeford remains the only CARF-CCAC accredited lifecare facility in the area. Blakeford's IL and skilled nursing occupancies remained solid through the first quarter of 2015 at 96% ILU and 91% SNF, with AL weakening to 78% ALU. AL occupancy has historically been more volatile and Blakeford is contemplating a project to address the challenges in its AL occupancy.

LARGE CAPITAL PLANS

Blakeford is evaluating a new master facilities plan (MFP), which is likely to incorporate the addition of up to 44 ILUs to its current campus. Additionally, the MFP may include the repositioning of Blakeford's ALU service line; the scope of the repositioning is uncertain at this time. The project is expected to be funded via a debt issuance and the total cost could range from \$25-\$35 million. Construction is not expected to start until the second quarter of 2016.

Blakeford is almost fully occupied in its ILUs, which has begun to impact net entrance fee receipts. An ILU expansion project would potentially open up capacity on the campus, which should improve entrance fee receipts and help grow top-line revenues over the medium term. However, Blakeford's debt capacity is limited at the rating level and a debt issuance would have to be supplemented by stronger, more consistent, cash flows in order to maintain the rating. Currently, Blakeford's debt burden is manageable, with MADS as a percentage of revenue at 11.7%, comparing well to Fitch's 'BBB' category median of 12.3%.

Blakeford's routine capital expenditures for 2015 are budgeted to be below depreciation at \$1.4 million. Separately, Blakeford is expecting to spend \$2 million, set aside from the 2012 bond financing, for renovations to its ILU tower expected to occur this summer. Blakeford is also looking to repurpose twelve of its ALUs to be used as SNF beds. The repositioning will not create additional SNF capacity but will convert more SNF beds to private, which Fitch believes would further strengthen the service line.

DEBT PROFILE

All of Blakeford's debt is fixed rate. There are no swaps outstanding.

DISCLOSURE

Blakeford covenants to provide annual audited disclosure within 150 days of the fiscal year end and quarterly disclosure within 45 days of the quarter end.