Rating Action: Moody's assigns Aa2 to Lexington-Fayette Urban Cnty Govt, KY's 2020 Taxable Project Refunding Bonds; outlook stable
Global Credit Research - 24 Jul 2020
New York, July 24, 2020 -- Moody's Investors Service has assigned a Aa2 rating to Lexington-Fayette Urban County Government, KY's (LFUCG) $33.19 million Taxable Project Refunding Bonds, Series 2020 (Lexington-Fayette Urban County Government General Obligation), issued through the Lexington-Fayette Urban County Government Public Facilities Corporation. Concurrently, we have affirmed the Aa2 rating on LFUCG's rated outstanding general obligation debt, the Aa2 on the outstanding rated general airport revenue bonds, and the A2 rating on the outstanding convention facilities revenue bonds. The outlook is stable.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM906586622 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.
The Aa2 general obligation bond rating reflects a sizeable and expanding tax base that serves as a regionally important economic center, the stabilizing institutional presence of the University of Kentucky (Aa2 stable), a growing population, and healthy resident income levels. The rating also incorporates LFUCG's healthy fund balance and liquidity position that will remain adequate despite a planned use of fund balance as well as above-average, yet manageable, debt and pension burdens.
The Aa2 rating on the Taxable Project Refunding Bonds, Series 2020 is on parity with LFUCG's general obligation bond rating, reflecting the ultimate bondholder security in the non-contingent lease obligation of LFUCG to make lease payments secured by the government's general obligation and full faith and credit pledge.
The Aa2 rating on the outstanding general airport revenue bonds is on parity with LFUCG's general obligation bond rating, reflecting the ultimate bondholder security in the non-contingent lease obligation of LFUCG to make lease payments secured by the government's general obligation and full faith and credit pledge.
The A2 rating on the Convention Facilities Revenue Bonds reflects the ultimate bondholder security of the appropriation backstop of LFUCG, pursuant to a lease agreement which is subject to renewal risk, to replenish the debt service reserve fund in the event LCC gross revenues are insufficient to cover debt service. LFUCG's rental payments are only required to be appropriated in the event the debt service reserve fund is tapped, in the amount required to bring the debt service reserve fund back to the debt service reserve fund requirement. The three-notch distinction from LFUCG's GO rating also reflects the less-essential nature of the financed project (convention center expansion and sports arena renovation), an additional bonds test of 1.15 times, and a debt service reserve fund equal to maximum annual debt service.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. LFUCG is not susceptible to immediate material credit risks related to coronavirus. The longer-term impact will depend on both the severity and duration of the crisis. The situation surrounding coronavirus is rapidly evolving. If our view of the credit quality of the government changes, we will update the rating and/or outlook at that time.
The stable outlook reflects the likelihood that LFUCG's regionally significant tax base will continue to improve, that reserves and liquidity will remain adequate due to management's conservative budget assumptions and demonstrated history of strong expenditure controls, and that debt and pension burdens will remain manageable.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Significant and sustained growth in reserves and liquidity
- Substantial tax base growth coupled with improvement in resident income levels
- Material reduction of debt and pension burdens
- Upgrade of LFUCG's general obligation rating (lease ratings only)
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Deterioration of financial reserves and liquidity
- Material of tax base contraction or deterioration of resident income levels
- Significant increase in debt and pension burdens
- Downgrade of LFUCG's general obligation rating (lease ratings only)
LFUCG's outstanding general obligation bonds are secured by the government's requirement to levy an annual tax to pay the interest on and principal of the bonds as and when the same become due and payable.
The Taxable Project Refunding Bonds, Series 2020 are secured by lease rental payments from LFUCG to Lexington Center Corporation (LCC) pursuant to a lease agreement, a pledge of all of LCC's right, title and interest in various funds and accounts under the Trust Indenture, and a subordinated pledge of the revenues of LCC. The lease is a general obligation of the Urban County Government and the full faith, credit, and taxing power of the government is irrevocably pledged to the payment of the lease rental payments when due.
The Airport Revenue Bonds are secured by and payable from a pledge of the general revenues of the airport, the debt service fund and debt service reserve fund, and the lease. The lease is a general obligation of the Urban County Government and the full faith, credit, and taxing power of the government is irrevocably pledged to the payment of the lease rental payments when due.
The Convention Facilities Revenue Bonds, Series 2018 are secured by gross revenues of the Lexington Center Corporation (LCC), which include base rent and media rights payments from the University of Kentucky pursuant to a Facility Right of Use Agreement, and ultimately by the appropriation backstop of LFUCG, pursuant to a lease agreement which is subject to renewal risk, to replenish the debt service reserve fund in the event LCC gross revenues are insufficient to cover debt service. Under the LFUCG Lease, the rental payments are absolute and unconditional in all events, provided that no rental payments are due if at least three business days prior to a debt service payment due date, the amount required to pay debt service is on deposit in the debt service reserve fund. If the debt service reserve fund is tapped, LFUCG shall, by amendment to the budget if necessary, appropriate for a rental payment in the amount required to bring the debt service reserve fund back to the debt service reserve fund requirement.
USE OF PROCEEDS
Bond proceeds will be used to refund a portion of the outstanding Series 2018 Convention Facilities Revenue bonds, refund a portion of the outstanding Series 2018A Transient Room Tax Revenue bonds, and fund capitalized interest with respect to the bonds through March 2023.
Lexington-Fayette Urban County Government (LFUCG) is an important regional metropolitan center located in the bluegrass region of the Commonwealth of Kentucky (Aa3 stable), approximately 85 miles east of Louisville & Jefferson County Metropolitan Government (Aa1 stable). LFUCG operates under a Mayor-Council form of government where executive and administrative functions are vested with the Mayor and legislative authority is vested with the 15-member Urban County Council. LFUCG has a 2017 population of 318,734 according to the most recent U.S. Census American Community Survey, which represents a 9.8% increase since 2011.
The Lexington-Fayette Urban County Airport Board (LFUCAB), also known as the BlueGrass Airport, is a component unit of LFUCG governed by a 10 member board appointed by the Mayor. LFUCAB is the only Primary Commercial Service airport in central Kentucky served by both national and regional carriers. Enplanements totaled 710,931 in fiscal 2019, an 8.4% increase from the prior year.
The Kentucky Bond Development Corporation is a nonprofit corporation created pursuant to Sections 273.161 through 273.390, inclusive, and Chapter 103 of the Kentucky Revised Statutes and an Interlocal Cooperation Agreement dated September 19, 2014 (the "Interlocal Agreement") among several public agencies, including LFUCG.
The Lexington-Fayette Urban County Government Public Facilities Corporation is a nonprofit, non-stock public and governmental corporation organized with the principal purpose of acting as an agency and instrumentality of the Urban County Government in the planning, promotion, development, financing and acquisition by the Corporation for and on behalf of the Urban County Government of certain public improvements and public projects.
The principal methodology used in the lease ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1102364. The principal methodology used in the general obligation ratings was US Local Government General Obligation Debt published in September 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1191097. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
The List of Affected Credit Ratings announced here are all solicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM906586622 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:
- Rating Solicitation
- Issuer Participation
- Participation: Access to Management
- Participation: Access to Internal Documents
- Disclosure to Rated Entity
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_1133569.
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.
Evan Hess Lead Analyst Regional PFG Northeast 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 Lauren Von Bargen Additional Contact Regional PFG Northeast 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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