Fitch Ratings’ proposed changes to the way it rates not-for-profit continuing care retirement / life plan communities are designed to provide “much more transparency around [communities] that don’t conform to the traditional business model of more independent living units than skilled nursing beds,” Margaret Johnson, senior director and sector lead for life plan communities at Fitch Ratings, said Friday during a webinar.

Fitch held the event to review the proposed changes and to solicit feedback.

“Those [life plan communities] that are concentrated heavily in skilled nursing have had a much harder time recovering from the pandemic, and in fact, many have seen their performance deteriorate substantially,” Johnson said. “Through changes in criteria, we will provide analysts the tools that they can use to reflect the reasons behind the deterioration of these types of [life plan communities] specifically and account for those more clearly in our ratings.”

Among the changes that have been proposed:

  • 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.

“We do not expect the changes to criteria to result in a wholesale recalibration of our [life plan community] ratings. In fact, what we are finding is that as we are adding this transparency, most of our ratings hold up, so to speak,” Johnson said. “We will just now have a more nuanced toolbox at our disposal to articulate our rating rationales, which hopefully users of our ratings will find beneficial.”

Ratings for approximately 10% of the country’s CCRCs could be affected by the proposed changes, she 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,” Johnson said previously 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.”

The changes will only go into effect if they are incorporated into the final criteria, which Johnson said “will be heavily informed by the market feedback we receive on the exposure draft.

”The proposal and answers to FAQs about it are available on the Fitch Ratings website. Comments will be accepted at [email protected] through April 18.