Senior Living: Charting Continuing Care’s Path Out of the Pandemic | Lord Abbett
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Fixed-Income Insights

Signs of recovery are emerging for this $36 billion muni-bond sector after the significant challenges posed by COVID-19.

Read time: 3 minutes

[This article is from the forthcoming edition of the Lord Abbett Muni Quarterly.]

The COVID-19 pandemic has arguably made the senior living industry a challenging segment of the municipal-bond market. Although most continuing care retirement communities (CCRCs) faced stress, the impact on individual facilities was not uniform. Amid the pandemic, some have had to content with increased costs for staff and equipment as well as move-in restrictions from state health agencies, causing significant declines in occupancy. In 2020, some $766 million of municipal bonds issued for senior living communities defaulted, with an additional $425 million doing the same in 2021 (through May 2021), according to data compiled by Bloomberg. But context is important here: This is a relatively low default rate of approximately 3% when considering that there are approximately $36 billion of CCRC bonds outstanding. Within the municipal bond market, this sector has been one of the very few facing any distress. Negative headlines and media reports have had a material impact on sales in the industry, and key indicators such as overall inquiries from prospective residents, and facility operators’ Web traffic, have seen a significant decline.

While the sector remains under pressure, signs of recovery are emerging. A high rate of vaccination among the elderly is alleviating the public’s fears about these facilities. Move-in moratoriums are being lifted, and operators are once again receiving inquiries from prospective residents, which should drive a gradual increase in occupancy. Be that as it may, the recovery is likely to take at least a year, and certain organizations are better positioned for success than others.

The onset of the pandemic forced investors to reassess their senior living bond portfolios, a process that continues as credit selection takes on greater importance. We believe that organizations with certain features and capabilities will succeed, and we have overweighted such specific credits in our high-yield portfolio while underweighting the sector overall. Those credits with strong liquidity cushions, successful marketing strategies, and tools to address the dramatic challenges in the senior nursing segment are expected to withstand the ongoing challenges related to COVID-19.

Help from the Government

Senior living organizations were the recipients of significant government stimulus funds, with most receiving monies from both the CARES Act and the Paycheck Protection Program. Most of these stimulus funds will not need to be repaid and have served as a meaningful buffer to organizations’ liquidity. While most CCRCs benefited significantly from this assistance, many of them nonetheless maintain a modest liquidity position relative to operating expenses. We believe those organizations that entered the pandemic with strong liquidity and additionally benefited from stimulus funds are the best positioned to withstand the operating volatility accompanying the COVID-19 pandemic.

In addition, those organizations that tailored their marketing strategies in response to the pandemic have seen more success in retaining the interest of prospective residents and are likely to see a relatively faster pickup of reservations and move-ins in the coming months. Strategies have included sharing videos of existing residents or early depositors, hosting events that form connections between existing and potential residents, and offering prospective residents online tools to select units. In addition, facility operators have expanded their reach through an enhanced digital presence to appeal to younger seniors and their adult children.

There are typically three types of units in a CCRC, which are independent living, assisted living, and skilled nursing. While occupancy has remained somewhat stable in the first two types, occupancy in the skilled nursing units remains challenged due to lower elective cases at hospitals, more rigorous admission protocols, and changing consumer preferences. As hospital referrals to CCRCs’ skilled nursing units all but dried up during the pandemic, management teams have had to rethink their skilled nursing strategies, including size, staffing, and bed configuration. Management teams may need to consider rightsizing these facilities, as home health increasingly become CCRCs’ main competitor, a trend accelerated by the COVID-19 pandemic. In addition, hospital discharge planners are strongly advising CCRC residents to only go into private rooms, which could force CCRC facilities to convert double rooms into single rooms.

A Final Word

The CCRC sector has weathered a formidable storm. We have witnessed a remarkable resilience among operators, particularly those with experienced and proactive management teams. Overall, the demographics of the baby boomer generation reaching retirement age remains a positive tailwind for this sector and an attractive reason for continuing to review investments in the sector. Lord Abbett will continue to opportunistically select attractive CCRC investments for its high-yield portfolio to ensure that we only hold those senior living credits we believe are positioned to thrive in a changing landscape.



This commentary may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize, or that actual returns or results will not be materially different from those described here.

This material is provided for general and educational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, or any Lord Abbett product or strategy. References to specific asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations or investment advice.

References to specific securities and issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. The securities referenced may or may not be held in portfolios managed by Lord Abbett and, if such securities are held, no representation is being made that such securities will continue to be held. This is not a representation of any securities Lord Abbett purchased or would have purchased or that an investment in any securities of such issuers would be profitable.

A Note about Risk: The value of an investment in fixed-income securities will change as interest rates fluctuate and in response to market movements. As interest rates fall, the prices of debt securities tend to rise. As rates rise, prices tend to fall. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The municipal bond market may be impacted by unfavorable legislative or political developments and adverse changes in the financial conditions of state and municipal issuers or the federal government in case it provides financial support to the municipality. Income from the municipal bonds held could be declared taxable because of changes in tax laws. Certain sectors of the municipal bond market have special risks that can affect them more significantly than the market as a whole. Because many municipal instruments are issued to finance similar projects, conditions in these industries can significantly affect an investment. Income from municipal bonds may be subject to the alternative minimum tax. Federal, state and local taxes may apply. Investments in Puerto Rico and other U.S. territories, commonwealths, and possessions may be affected by local, state, and regional factors. These may include, for example, economic or political developments, erosion of the tax base, and the possibility of credit problems.

The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, is a $2.2 trillion economic stimulus bill enacted in March 2020 in response to the impact on the U.S. economy of the COVID-19 pandemic.

The credit quality of the securities in a portfolio is assigned by a nationally recognized statistical rating organization (NRSRO), such as Standard & Poor’s, Moody’s, or Fitch, as an indication of an issuer’s creditworthiness. Ratings range from ‘AAA’ (highest) to ‘D’ (lowest). Bonds rated ‘BBB’ or above are considered investment grade. Credit ratings ‘BB’ and below are lower-rated securities (junk bonds). High-yielding, non-investment-grade bonds (junk bonds) involve higher risks than investment-grade bonds. Adverse conditions may affect the issuer’s ability to pay interest and principal on these securities.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action, as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product, or service may be appropriate for your circumstances.

The opinions in this commentary are as of the date of publication, are subject to change based on subsequent developments, and may not reflect the views of the firm as a whole. The material is not intended to be relied upon as a forecast, research, or investment advice, is not a recommendation or offer to buy or sell any securities or to adopt any investment strategy, and is not intended to predict or depict the performance of any investment. Readers should not assume that investments in companies, securities, sectors, and/or markets described were or will be profitable. Investing involves risk, including possible loss of principal. This document is prepared based on the information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.



    Muni Quarterly




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