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Trust for Cultural Res. of the City of NY, NY -- Moody's revises Carnegie Hall Corporation's (NY) outlook to negative from stable; A1 affirmed

·13 min read

Rating Action: Moody's revises Carnegie Hall Corporation's (NY) outlook to negative from stable; A1 affirmed

Global Credit Research - 17 Dec 2020

New York, December 17, 2020 -- Moody's Investors Service has affirmed its A1 rating on the revenue bonds of The Carnegie Hall Corporation (NY). The bonds were issued through the Trust for Cultural Resources of the City of New York. The outlook has been revised to negative from stable.

RATINGS RATIONALE

The outlook revision reflects the magnitude of the revenue decline as the coronavirus pandemic has meant loss of box office and concert hall rental revenue, with uncertainty around pace of eventual recovery. While Carnegie Hall enacted prompt expense management measures, the business disruption caused by the coronavirus pandemic, which is a social risk under Moody's ESG framework, led to contraction of operating performance in fiscal 2021 and will likely prompt additional endowment draws in 2021. The current base 2021 budget calls for the venue to reopen in April 2021, translating to a cessation of hosting live events of over one year, although the ability to reopen is tied to multiple factors outside management's control. The revenue impact could continue after reopening as the pace of box office revenue will depend on the comfort level of concert goers to return as well as broader demographic trends.

The A1 rating is anchored by Carnegie Hall's exceptional brand recognition as a performance venue, the philanthropic commitment of key donors and an engaged board supporting its very good brand. Prior to the pandemic, improved operating performance through reduced endowment spending supported growth of total cash and investments, which reached $367 million at the end of fiscal 2020. The rating also incorporates ties to the City of New York (Aa2 negative) that yield support for utilities and occasionally a portion of capital projects. Elevated financial leverage is the primary challenge, with total adjusted debt to revenue of over 1.7 times, including revenue bonds, operating line draws, the net pension liability along with an expected to be forgiven $5.5 million Small Business Administration PPP loan. Carnegie Hall's high degree of operating support from endowment distributions and gifts has been a credit stabilizing element during this period of operational disruption, but would also be a vulnerability in the event of a financial market downturn, particularly given its high degree of leverage.

RATING OUTLOOK

The negative outlook reflects expectations that Carnegie Hall's operating performance and earned revenue prospects will be challenged through 2021. An inability to return to strong operating performance with a 5% endowment draw by 2022 while also maintaining healthy liquidity could prompt downward pressure.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING

- Substantial and sustained increase in total cash and investments including unrestricted liquidity

- Enhanced revenue diversity with reduced reliance on annual gifts to support operating performance

- Permanent reduction in financial leverage, improving financial flexibility

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING

- Deterioration of operating performance with debt service coverage below 1x beyond the pandemic period

- Reduction in total wealth levels or liquidity during this period of operational disruption or inability to meet fundraising targets

- Increase in financial leverage relative to financial resources or revenue

LEGAL SECURITY

The obligation of The Carnegie Hall Corporation to make payments under the loan agreement is an unsecured obligation. There is no mortgage pledge or debt service reserve fund.

PROFILE

Carnegie Hall presents music performances in various venues including the 2,804 seat Stern Auditorium / Perelman Stage, the 268-seat Weill Recital Hall and 599-seat Zankel Hall. The primary building and nearby facilities are leased from the City of New York. Operating revenue was $90 million in fiscal 2020. In addition to producing and presenting musical performances, Carnegie Hall also provides various music education and social impact programs that have become an increasing focus of its philanthropic support.

METHODOLOGY

The principal methodology used in this 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 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.

Dennis Gephardt 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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