Fitch Ratings has set in stone its new rating criteria for new ratings and how it will be monitoring life plan communities (LPCs) moving forward.
The agency on Monday said it had made some “notable changes” to its methodology for life plan community ratings, including better defining the major factors it looks at when assigning ratings, particularly in regards to “revenue defensibility,” which looks over the size and scale of a community, market demand, rates and affordability. The changes are meant to better reflect a community’s financial profile, operating risks and ability to generate revenue.
Fitch noted that about 12% of life plan community ratings are “under criteria observation” with the new changes.
The agency first sought to update its criteria for rating life plan agencies to “better reflect the risks” of operating such communities, Margaret Johnson, senior director and head of U.S. Life Plan Communities for Fitch Ratings, told Senior Housing News in March. The release followed a public comment period wherein Fitch received responses from senior housing industry stakeholders.
“LPCs were front and center of this discussion given the disproportionate impact Covid had on the senior living sector. The revisions to criteria are meant to reflect this,” Johnson told Senior Housing News Monday.
Included in the changes are more nuanced methods of determining the financial health of a life plan community. With the revision, Fitch will also now take into account a community’s size and scale, and differently weigh communities that have more skilled nursing than independent living units.
The company also believes the new criteria reflects “a more holistic view of the sector risk profile” by limiting life plan communities to a ceiling of an “A” rating while expanding “B” ratings out to three different tiers, “BBB,” “BB” and “B.”
In June, the company noted non-profit LPCs have been facing a deteriorating outlook since 2022 as a whole, largely due to the cost of staffing and slowing real estate prices. Over the past two years, the number of LPCs with negative ratings has increased from 7% to 10%.
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