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The Broad -- Moody's assigns initial Aa1 to The Broad Foundations (CA) and Aa1 to The Broad's (CA) sustainability bonds; outlook stable

·14 min read

Rating Action: Moody's assigns initial Aa1 to The Broad Foundations (CA) and Aa1 to The Broad's (CA) sustainability bonds; outlook stableGlobal Credit Research - 22 Mar 2021New York, March 22, 2021 -- Moody's Investors Service has assigned an initial Aa1 issuer rating to The Broad Foundations and an Aa1 rating to The Broad's proposed approximately $114 million of Refunding Revenue Bonds (The Broad ) (Sustainability Bonds) Series 2021A. The bonds will be issued through the California Infrastructure and Economic Development Bank with final maturity in 2031. At this time Moody's has affirmed the Aa1 rating on $150 million of Revenue Bonds (Broad Museum Project), Series 2011A (to be refunded). The outlook on The Broad's debt is stable and a stable outlook has been assigned to The Broad Foundations.RATINGS RATIONALEThe assignment of The Broad Foundations' (TBF) Aa1 issuer rating reflects its substantial wealth and liquidity, with $1.9 billion of unrestricted cash and investments as of the most recent fiscal 2019 audit (December 31, 2019). TBF's excellent brand and strategic positioning is supported by its financial resources that provide substantial coverage of supported debt, debt service obligations and other grant making activities. In addition to providing support for The Broad's debt, TBF also provides critical operating support to The Broad through an Operating Support Pledge with a remaining $314 million of pledged support as of December 31, 2020.Additionally factored into TBF's rating is a governance structure that, while evolving, still puts a high concentration of fiduciary powers on the founder and close business associates. Under Moody's ESG approach, these governance elements are a key driver of the action including the risk category of Board Structure, Policies and Procedures. Further, TBF has a long history of elevated spending that leaves wealth levels relatively stagnant over time and has led to material erosion of the endowment's purchasing power. However, beyond its Pledge Agreements with The Broad, TBF keeps its grant commitments flexible, indicative of its very good financial strategy. Outside of investment market volatility, the coronavirus pandemic has had limited direct impact on the operations of TBF or the operating funding needs of the museum due to their lack of exposure to earned revenue.The assignment and affirmation of The Broad's Aa1 debt rating is based on The Broad Foundation's (TBF) unconditional, irrevocable General Support Pledge Agreement to The Broad for general support, including full and timely semi-annual payments for the Series 2021A debt service.RATING OUTLOOKThe stable outlook incorporates Moody's expectations that TBF will maintain its exceptionally strong balance sheet, including liquidity management and obligations under its Pledge Agreements. It additionally reflects the likelihood of continued grant making that is above 5% of assets, but that TBF will maintain budget flexibility in its commitments outside of the Pledge Agreements.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Ongoing evolution of TBF's governance structure, with greater diversification of oversight and checks and balance, comparable to best practices at other highly rated organizationsFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Deterioration of overall wealth levels or liquidity, or erosion of the endowment's relative financial healthLEGAL SECURITYThe proposed Series 2021A and outstanding Series 2011A bonds are secured by The Broad's unconditional, absolute, irrevocable pledge of all of its revenues, including payments to be made under the General Support Pledge Agreement by The Broad Foundations. The Broad Foundations' obligations under the General Support Pledge Agreement are absolute and unconditional, and cannot be discharged, released, abated or set-off in any way. Payments under the General Support Pledge Agreement are in amounts which equal or exceed each debt service payment on the bonds and will be paid on or before the payment due dates. Payments under the General Support Pledge Agreement are sent directly to the Trustee.USE OF PROCEEDSThe proceeds of the Series 2021A Bonds along with other legally available funds will be used to refund the Series 2011A Bonds currently outstanding and pay costs of issuance.PROFILEEstablished in 1999, The Eli and Edythe Broad Foundation is a private grant-making foundation providing funding for initiatives in education, sciences and the arts. For education it established The Broad Center, training individuals to become leaders in urban public school systems and supported leaders, programs and organizations that expand learning opportunities for children in public schools in Los Angeles and across the nation. For the arts, it has supported many arts institutions and created The Broad museum in downtown Los Angeles. In science it provides substantial support to The Broad Institute as well as three university-based stem cell research centers.METHODOLOGY The principal methodology used in The Broad's ratings was Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1068154. The principal methodology used in The Broad Foundations' issuer rating 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 these methodologies. REGULATORY DISCLOSURESFor 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. Michael Osborn Lead Analyst Higher Education Moody's Investors Service, Inc. One Stamford Plaza 263 Tresser Boulevard Stamford 06901 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Dennis Gephardt 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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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