Rated Fixed-Rate Bonds. Institutional and experienced-retail bond investors recognize the value of the senior living facilities offering rated fixed-rate bonds. As a result of the investment grade rating, they reward the facility for its strong financial performance with lower interest rates, as compared to non-rated bonds. Additionally, investors accept more flexible covenants because of the perceived financial strength of the senior living organization.
An organization receives a credit rating after a detailed operational review by one or more of the rating agencies. Investment grade ratings range from “BBB-” to “AAA.”
Non-Rated Fixed-Rate Bonds. Both institutional and experienced-retail investors recognize that many unenhanced, non-rated fixed-rate bonds are issued for sound facilities that do not fit the rating agencies’ criteria for investment-grade bonds. While they may require higher interest rates for an unenhanced bond issue, bond investors may also allow for more flexible credit terms and alleviate the requirement of an annual letter-of-credit fee. This type of investor often accepts higher leverage, temporarily low cash positions, or more aggressive assumptions on reimbursement increases or revenue growth.