Ratings for 10% of the country’s not-for-profit continuing care retirement / life plan communities could be affected by changes being proposed by Fitch Ratings, the agency. The company released a draft of the proposal on Monday, saying it wanted to make the changes to better reflect the risk profile of the communities it rates.

“We anticipate most rating changes, if any, would be downgrades limited to one notch,” Fitch said.

“The proposed revisions to criteria are intended to better reflect the unique risks of [life plan communities] and their typically very limited market draw and high industry concentration risk, which limit their rating potential,” Fitch Senior Director Margaret Johnson said in an emailed press release. “The proposed revisions also acknowledge [life plan communities’] propensity for large-scale capital plans relative to their revenue size and provide better transparency on when and how these plans will be factored into ratings.”

CCRCs with more skilled nursing units than independent living units “are more vulnerable to revenue pressures, as they typically have very little pricing flexibility due to their high exposure to governmental payers,” Fitch said. Expansion projects also have an effect on determining a community’s revenue defensibility, according to the agency. 

“While expansion projects can be of strategic benefit … they very often lead to increased leverage and represent a relatively high degree of risk associated with the fill-up of expansion units,” Johnson said.

Among the proposed changes to rating criteria:

  • Limiting ratings of CCRCs that do not carry a third-party guarantee to the ‘A’ category;
  • Added revenue defensibility sub-assessments to better differentiate risks of multi-site versus single-site CCRCs;
  • An added ‘B’ category to the ratings positioning table and added enhanced guidance for ratings below ‘B’ category; and;
  • Further guidance on potential rating action based on probability and the rating effect of a capital project.

The proposal, “Exposure Draft: US Public Finance Not-For-Profit Life Plan Community Rating Criteria,” and answers to FAQs are available on the Fitch Ratings website. Comments about the proposed changes will be accepted at [email protected] through April 18.