Fitch Affirms Sisters of Mercy of the Americas South Central Community Obligated Group Revs at 'A+'

Fitch Ratings has affirmed the 'A+' rating on the following series of bonds issued on behalf of the Sisters of Mercy of the Americas South Central Community Obligated Group (SOMASCC) (formerly the Sisters of Mercy of the Americas, Regional Community of Cincinnati Obligated Group):

--$14.8 million Louisville/Jefferson County Metro Government, industrial building revenue bonds series 2006;

--$5.3 million Port Authority of Greater Cincinnati Development Authority, economic development revenue bonds series 2006.

The Rating Outlook is Stable.

SECURITY

The bonds are a joint and several obligation of the obligated group, secured by a gross receipts pledge and negative lien pledge.

KEY RATING DRIVERS

HEALTHY LIQUIDITY: Balance sheet liquidity remains strong for the rating category, with available funds of about $430 million, covering fiscal 2014 operating expenses and total debt by a healthy 5.1x and 13.9x, respectively.

CONTINUED VOLATILITY IN ENROLLMENT: There remains instability in the enrollment levels in the obligated group's high schools. While the fluctuations are of concern, it is important to note that tuition revenues account for a manageable 35% of the obligated group's total operating revenues.

MANAGEABLE DEBT BURDEN: The debt burden is high but manageable at approximately 13.9% in fiscal 2014, including loan guarantees outstanding at June 30 fiscal-year end. The high level is somewhat mitigated by the strong financial cushion and lack of additional debt plans.

RATING SENSITIVITIES

INVESTMENT PERFORMANCE: A significant decline in Sisters of Mercy of the Americas South Central Community Obligated Group's balance sheet resources could negatively affect the rating and/or Outlook.

CREDIT PROFILE

Members of the obligated group include four all-girls Catholic high schools and SOMASCC, a Roman Catholic congregation of religious women who serve the poor, sick and uneducated, and operate nursing homes for elderly sisters. The schools are McAuley High School and Mother of Mercy High School, located in Cincinnati, and Assumption High School and Academy of Our Lady of Mercy High School, located in Louisville.

Prior to 2008, there were 25 regional organizations of sisters that were subsequently merged into five. With this merger SOMASCC's resources increased substantially, from approximately $104 million to $401 million.

In fiscal 2014, available funds totaled $430 million, providing a healthy 507% coverage of operating expenses and an even stronger 1390% coverage of debt. While the fiscal 2015 audit is not yet available, it is expected to show another strong year, based on preliminary data.

Debt burden remains high at 13.9% in fiscal 2014; however, no additional debt plans and payment of bank debt significantly reduced outstanding debt in fiscal 2015. A large reduction in maximum annual debt service is expected to reduce debt burden to very manageable levels.

Operationally, fiscal 2014 showed a negative margin, at 18.9%, compared to nearly breakeven operations in the prior two fiscal years; however, fiscals 2010 and 2011 also showed deficits of 14% and 11%, respectively. The obligated group's performance is impacted largely by investment performance and gift receipts. In fiscal 2012, an unusually large gift of $12 million was received driving improvement in the margin. In fiscal 2014, significant investment gains drove management to increase its contribution expense to a legally separate and non-pledged retirement trust set up to support retired sisters. This increased expense drove a reduction in the operating margin the same year; however, annual contributions are at the board's discretion and fluctuate year to year. SOMASCC's vast resources mitigate any concern.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

U.S. Nonprofit Institutions Rating Criteria (pub. 05 Jun 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866668

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=991734

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=991734

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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