Rating Action: Moody's assigns A3 to Lincoln Center For The Performing Arts, Inc., NY's Series 2020A and 2020B bonds; outlook revised to negative
Global Credit Research - 27 Jul 2020
New York, July 27, 2020 -- Moody's Investors Service has assigned A3 ratings to the proposed $140 million Refunding Revenue Bonds, Series 2020A (Lincoln Center for the Performing Arts, Inc.) issued by the Trust for Cultural Resources of the City of New York on behalf of Lincoln Center For The Performing Arts, Inc. and the proposed Lincoln Center For The Performing Arts, Inc. Taxable Bonds, Series 2020B that will have a proposed par amount ranging from $40 million to $73 million depending on market conditions. We also affirm the A3 rating on approximately $88 million of outstanding debt. The outlook has been revised to negative from stable.
The revision of the outlook to negative is driven by significant operational disruption due to the coronavirus pandemic, which we consider a social risk under our ESG framework. Multiple revenue streams will be disrupted through the fall and potentially beyond as seasons, performances, and events are cancelled for both those operated by LCPA and its constituent organizations. While management has taken rapid and proactive action to adjust expenses, already weak operating performance could fall further through at least fiscal 2021.
The affirmation and assignment of the A3 rating is based on LCPA's globally recognized brand, and strong donor support, including support from a high-profile board. Total cash and investments of $290 million as of fiscal 2019 and monthly liquidity of $111 million, or 288 monthly days cash on hand, provides LCPA with strong flexibility to absorb projected near term operating losses. Further, prior to the pandemic, management had demonstrated a commitment to improving previously weak operating performance. With the current proposed issue, LCPA is also reducing debt structure risks, highlighting a path to strengthened financial strategies. These strengths are offset by a highly capital intensive business model resulting in elevated leverage.
There is significant uncertainty around the magnitude and duration of financial disruption caused by the pandemic, both directly for LCPA and its constituent organizations. Active fiscal management during the pandemic will be a key credit consideration.
The negative outlook reflects the possibility of credit deterioration if the impact of the coronavirus and the deteriorating global economic outlook place prolonged downward pressure on key revenue sources including event income, investment income, and philanthropy.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Marked and sustained improvement in operating performance
- Substantial gain in total cash and investments including unrestricted liquidity
- Significant improvement in debt affordability
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Material decline in unrestricted liquidity
- Sharper revenue, liquidity or total wealth declines than expected because of the pandemic
- Significant reduction in donor support
- Increased financial leverage
LCPA's obligation under the loan agreement is a general, unsecured obligation.
USE OF PROCEEDS
Proceeds from the Series 2020A bonds will refund the variable rate Series 2008-A direct placement bonds. Proceeds from the Series 2020B bonds will fund either a partial or full termination of the swaps associated with the 2008-A bonds.
Lincoln Center For The Performing Arts, Inc. is a world class performing arts complex located on 16 acres in New York City. There are over 40 on-campus venues including approximately 20 theaters, including concert halls, and film studios. LCPA also has ties to the City of New York that owns or has an easement to various components of the LCPA campus, including the Josie Robertson Plaza. Additionally, various New York City officials serve in an ex officio capacity on the board. LCPA generated operating revenue of $135 million in fiscal 2019.
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.
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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website 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.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
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.
Ceridwynne Lake 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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