RATING OUTLOOK
The stable outlook for the student fee bonds reflects our expectations that while student fee revenue will modestly decline in the near time, debt service coverage will remain at historically strong 1.7x or more levels, and there are no additional debt plans for the AHEC enterprise.
The negative outlook for the parking revenue bonds reflects the potential for ongoing parking revenue declines due to coronavirus-related business disruptions, depending on the pace of operational recovery and return to campus operations.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Substantial increase in wealth and liquidity measures
- Stronger, sustained pledged revenues providing improved debt service coverage for either or both of the student fee and parking enterprise bonds
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- For the student fee bonds: declining student enrollment leading to decreased student fee bond debt service coverage and continuous weak debt service coverage
- For the parking bonds: prospects for significantly weaker parking system usage, leading to multi-year use of reserves; use of the debt service reserve fund to cover debt service
- Sustained deterioration in consolidated operating performance and unexpected use of liquidity beyond current expectations
- Material new debt absent growth in revenue and flexible reserves
LEGAL SECURITY
The student fee revenue bonds (Series 2013 are rated, Series 2015 and 2016 are direct placements) currently outstanding at $18.4 million are payable from and secured by pledged revenues consisting of a mandatory student fee (per student per semester fee) and investment income earned on accounts relative to the student fee bonds. Up to 3.5% of student fees may be held for collection fees and doubtful allowance accounts for MSU Denver, CU Denver and CCD. In fiscal 2020, pledged revenues totaled $5.46 million or 7% of the $74.7 million of AHEC Moody's draft 2020 adjusted operating revenue. There is a rate covenant to assess and collect fees to maintain pledged revenues equal to 1.25x maximum annual debt service (MADS) and an additional bonds test of 1.35x on the combined maximum annual debt service on all outstanding bonds and any outstanding additional parity bonds. In addition, there is a cash reserve currently funded at $2.0 million and a surety bond valued at $1.5 million. Covenants of the direct placement debt are identical to bonds on parity and there is no renewal risk. Pledged revenues covered fiscal 2020 debt service by 1.73x.
The parking enterprise revenue bonds (Series 2004B, 2013A and 2015 are rated, Series 2016 are direct placement) currently outstanding at $35 million, are payable from net revenues of the parking system. There is a rate covenant to maintain fees, rates and charges equal to 1.25x and there is a debt service reserve fund. Covenants of the direct placement debt are identical to bonds on parity and there is no renewal risk. Fiscal 2020 parking net revenues of $4.95 million covered $3.18 million in debt service by 1.56x.
PROFILE
The Auraria Higher Education Center is an instrumentality of the State of Colorado, established in 1974, responsible for planning and managing shared physical plant assets and auxiliary enterprises for three contiguous higher education institutions (University of Colorado at Denver, Metropolitan State University, and Colorado Community College of Denver). AHEC is located in Denver, Colorado. Draft fiscal 2020 Moody's adjusted operating revenue was $75 million.
METHODOLOGY
The principal methodology used in these ratings was Nonprofit Organizations (Other Than Healthcare and Higher Education) published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1160889. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Mary Cooney Lead Analyst Higher Education Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Susan Fitzgerald Additional Contact Higher Education JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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