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���������ֳ�-New York-25 April 2012: ���������ֳ� has affirmed the 'BB' rating on the approximately $36.44 million series 2010A and B bonds issued by the city of Alhambra, CA on behalf of Atherton Baptist Homes (Atherton).

The Rating Outlook is revised to Negative from Stable.

SECURITY
The bonds are secured by gross revenue pledge, mortgage, and debt service reserve fund.

KEY RATING DRIVERS

DECLINE IN EXISTING OCCUPANCY: The Rating Outlook revision to Negative from Stable reflects the decline in existing independent living units (ILU) occupancy, which has resulted in weaker than expected financial performance and continued challenge in the fill up of its new expansion project.

EXPANSION PROJECT COMPLETED: Atherton's 50 ILU expansion (Courtyard project) opened on time and within budget at the end of June 2011. Management projects the units to fill over a 30-month time period, and 27 units were occupied as of April 2012.

WEAK FINANCIAL PROFILE: Atherton's below investment grade rating reflects its high debt burden, weak profitability and liquidity, however, these metrics are expected to improve upon stabilized occupancy of the new units.

HIGH DEBT BURDEN: It is imperative that Atherton achieves stabilized occupancy in a timely manner to pay down debt and provide sufficient cash flow to cover its debt service requirements. Debt service coverage by turnover units only was below 1 times (x) in 2011.

WHAT COULD TRIGGER A RATING ACTION

FAILURE TO REACH STABILIZED OCCUPANCY: The failure to reach stabilized occupancy over the next two years would likely result in downward rating pressure into the next rating category.

CREDIT PROFILE

The Courtyard project was part of Atherton's campus improvement plan. The project added 50 ILUs to the existing campus and included the renovation and upgrade of existing common facilities. The total construction cost was $33.4 million, and the Courtyard opened on time and within budget in June 2011.
Atherton issued $29.3 million fixed rate series 2010A bonds and $14.64 million of series 2010B bonds to fund the project.

The series 2010B bonds are being paid down with initial entrance fees generated from the Courtyard project, which should generate a total entrance fee pool of $17.5 million (50 units at an average entrance fee of $350,000). Atherton has $7.14 million remaining to be redeemed by its final maturity on Jan. 1, 2017. To date, Atherton has paid down $5 million in October 2011 and $2.5 million in January 2012. Management expects to continue to redeem the 2010B bonds as initial entrance fees are received, which is slower than the optional redemption schedule outlined in the official statement. The current projected paydown schedule is $3.85 million in 2012 (includes $2.5 million already redeemed), $2 million in 2013, $2 million in 2014, $1 million in 2015, and $790,000 in 2016. ���������ֳ� believes it is imperative that Atherton successfully market the new units and collect initial entrance fees to pay down the balance of the series 2010B bonds.

At the time of ���������ֳ�'s last review, Atherton had secured 38 depositors for the Courtyard project. Only 26 converted, and occupancy remained at that level from October 2011 to February 2012. Management indicated that six of the initial depositors dropped due to financial difficulties. The marketing team continues to work on the conversion of six of the original depositors.

Due to various marketing initiatives, management states that as of April 2012, they have 27 units occupied with another three sold. Atherton continues to engage Greenbrier Marketing Services as a marketing consultant who will assist in training staff and reaching sales goals. Current initiatives include outreach at churches, newspaper flyers that include a 25% financial incentive (reduction on existing ILU entrance fee or subsidy on Courtyard monthly fees for a limited period), and continued events at the community to engage prospective residents.

Of particular concern is the dip in occupancy of the existing ILUs, which has been affected by higher than normal attrition. Occupancy in the existing ILUs dropped to 78.8% as of March 2012 compared to 84.7% in the first quarter of 2011 and 81.8% in the first quarter of 2010. It is critical that management accelerate the sales of the existing ILUs to maintain a steady amount of turnover entrance fee receipts to cover its high debt service requirements. Management projects the existing units to reach an average occupancy of 82.4% for 2012.

Atherton's financial profile is characteristic of a non-investment grade credit with a high debt burden, weak profitability, and light liquidity. Maximum annual debt service (MADS) of $2.5 million (assuming paydown of the series 2010B bonds) comprised 17.2% of total revenue in 2011 (draft audit). Currently, MADS cannot be covered by turnover entrance fees. Actual debt service in 2011 of $6.1 million, which includes the $5 million redemption of the series 2010B bonds, was covered by 1.6x but includes initial entrance fees of $9.2 million. Atherton had a bottom line loss of $2.4 million in 2011 due to increased depreciation expense. Profitability is expected to be further pressured in 2012 as capitalized interest has been depleted and a full year of the increased depreciation expense related to the project is realized.

Net entrance fee receipts from turnover entrance fees were $1.2 million in 2011, $733,000 in 2010, and $1.765 million in 2009. Management projects ongoing turnover entrance fee receipts to be approximately $1.5 million year. Initial entrance fees are transferred to a trustee held fund, but due to timing, may inflate unrestricted cash temporarily as the initial fees are received then transferred. Atherton received $9.197 million in initial entrance fees in 2011.

Unrestricted cash and investments totaled $8 million as of Dec. 31, 2011, which translated to 203.6 days cash on hand and a very light 21.3% cash to debt. ���������ֳ� believes Atherton's asset allocation targets are aggressive for its rating level with 75% equities and 25% fixed income securities. Projected capital needs are approximately $1 million a year.

A rating downgrade is precluded at this time due to the recent momentum in sales activity and the timeframe allowed under the bond documents to reach stabilized occupancy (85%). Atherton's debt service coverage (1.2x MADS coverage) and liquidity (180 days) bond covenants will be monitored once stabilized occupancy is achieved or 2014, whichever occurs earlier.

The Negative Outlook reflects ���������ֳ�'s concern that Atherton will be challenged over the next two years to achieve stabilized occupancy given the current economic environment. Atherton needs to generate revenue from the new units and improve occupancy in its existing units to produce consistent turnover entrance fee receipts to cover its debt service requirements. Failure to reach stabilized occupancy by 2014 would likely result in downward rating pressure into the next rating category.

Atherton Baptist Homes is a Type C continuing care retirement community (CCRC) located in Alhambra, CA with 170 existing ILUs, 50 Courtyard ILUs 38 ALU, and 99 SNF beds. Total revenue in fiscal 2011 was $14.2 million. Disclosure is excellent with monthly financials and occupancy statistics posted on EMMA. In addition, management hosts quarterly investor calls.

Contact:

Primary Analyst
Emily Wong
Senior Director
+1-212-908-0651
���������ֳ�, Inc.
One State Street Plaza
New York, NY 10004

Secondary Analyst
Michael Borgani
Director
415-732-5620

Committee Chairperson
Jim LeBuhn
Senior Director
+1-312-368-2059


Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com.

Additional information is available at ''. The ratings above were solicited by, or on behalf of, the issuer, and therefore, ���������ֳ� has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated June 20, 2011;
--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities', dated July 26, 2011.

Applicable Criteria and Related Research: