Fitch Ratings assigns an 'A+' rating to the following series of bonds issued by the Fulton County Development Authority on behalf of Georgia Tech Athletic Association (GTAA):
--$97.3 million revenue bonds, series 2012A;
--$28.1 million taxable revenue bonds, series 2012B.
The bonds are expected to price via negotiated sale the week of Jan. 30. Proceeds of the series 2012A bonds will be used to refinance GTAA's outstanding series 2001 bonds, finance a new tennis center, and pay costs of issuance. The series 2012B bonds will fund a swap termination payment.
In addition, Fitch affirms GTAA's outstanding debt as follows:
--$88.8 million revenue bonds, series 2011 at 'A+';
--$96.6 million revenue bonds, series 2001 at 'A+' (expected to be refunded with proceeds of series 2012A).
The Rating Outlook is Stable.
SECURITY
Revenue bonds are an unsecured general obligation of GTAA, payable from all legally available funds.
RATING RATIONALE
INSTITUTIONAL ALIGNMENT: GTAA's integral role in administering a comprehensive intercollegiate athletic program on behalf of Georgia Institute of Technology (Georgia Tech) underpins the 'A+' rating. Although GTAA is separately incorporated and Georgia Tech is not obligated to repay debt issued on its behalf, the priorities of both organizations are in close alignment, evidenced by an overlap in governance and institutional goals.
SOUND LIQUIDITY: Credit stability is provided by a sound level of balance sheet resources, fueled by a diverse revenue base; Georgia Tech's participation in the lucrative Atlantic Coast Conference (ACC); and significant fundraising capabilities given the consistently strong performance of Georgia Tech athletic programs.
DEFICIT GENERATING OPERATIONS: Although not uncommon for a stand-alone, athletics focused auxiliary enterprise, GTAA generates a sizeable operating deficit as calculated by Fitch (on a GAAP basis). While it is unlikely this will abate over the near term, GTAA's experienced management team is focused on cost containment and excels in comprehensive facilities planning.
HIGH DEBT BURDEN: GTAA maintains a high pro forma debt burden as a result of the ongoing need to invest in facilities and infrastructure; and utilizes non-level amortizing, back loaded debt structures.
CREDIT PROFILE
GTAA manages the athletic department of Georgia Tech, maintaining a close working relationship with the university and serving as an integral part of its overall identity. As a premier public research university, Georgia Tech enjoys consistently strong student demand, which in turn leads to demand for the intercollegiate athletic programs administered by GTAA, principally football and basketball. The long track record of success among the athletics program provides further stability. GTAA's connection to the university, demonstrated through the close alignment of their mission, institutional goals and management, continues to be viewed positively by Fitch. In addition, while not legally obligated to do so, Georgia Tech has at times in the past provided operational support to GTAA when needed.
Balance sheet liquidity is sound and continues to improve following market-driven investment losses in fiscal 2009. Available funds, defined by Fitch as cash and investments not permanently restricted, totaled $64.1 million as of June 30, 2011, covering a solid 115.7% of operating expenses ($55.4 million). Available funds covered a fairly low 29.6% of pro forma debt (about $217 million), although this is not uncommon for a stand-alone university auxiliary enterprises.
GTAA's debt profile had become more conservative over time, and debt is entirely in fixed-rate mode, a factor viewed favorably by Fitch. However, the structure of the series 2012 bonds includes two $30 million bullet payments in fiscal years 2020 and 2023, creating remarketing risk. At this time, GTAA intends to refinance the bullet payments when due and fully amortize them over the remaining life of the bonds, which mature in fiscal 2043. As implied by its 'A+' rating, GTAA maintains moderate financial flexibility to manage the various risks associated with bullet maturities. GTAA's management team prepared a detailed decision timeline and procedures to manage repayment of the bullets from its available resources in the event they are unable to refinance. GTAA's close relationship with Georgia Tech partially mitigates concerns over market access. Proceeds of the series 2012B bonds will terminate an existing swaption, thereby eliminating GTAA's exposure to derivative instruments.
Membership in the ACC provides for lucrative media contracts and corporate advertising and sponsorship agreements. ACC distributions and ticket sales represent the largest revenue sources at 23.5% and 19.1%, respectively in fiscal 2011. Revenue diversity remains offset by a track record of negative operations. However, while still negative, GTAA's operating margin improved slightly in recent years. In addition, operations are supported by distributions made from GTAA's endowments, which are held by the Georgia Tech Foundation. Cost containment measures implemented over the past few years, coupled with projected revenue growth, largely from a new ESPN broadcasting agreement, are anticipated by management to improve operating performance going forward.
Similar to many university auxiliary enterprises, such as athletics, GTAA has a high debt burden. Maximum annual debt service (MADS) of about $41.6 million (including bullet payments) is expected to occur in fiscal 2020 and represents a very high 81.9% of fiscal 2011 operating revenues. As MADS includes the $30 million bullet payment in fiscal 2020, Fitch also analyzed average annual debt service (AADS). AADS through fiscal 2043 equals about $15 million, resulting in a more moderate but still high 29.6% debt burden. Concern over the high debt burden is partially offset by GTAA's prudent capital planning and conservative budgeting practices. While athletic facilities will have ongoing capital needs, by policy, any new projects must first have an identified funding source and be aligned with Georgia Tech's campus master plan. GTAA benefits from significant donor support towards construction, operations and maintenance of facilities and is also in the midst of a $150 million capital campaign that is part of a broader $1.5 billion university-wide effort.
Established in 1934 GTAA is a nonprofit organization charged with administering the athletic programs of Georgia Tech. While legally separate from Georgia Tech, GTAA functions as the collegiate athletic department. Georgia Tech's athletic facilities are owned by the Board of Regents of the University System of Georgia and leased to GTAA under long-term contracts at nominal cost. GTAA manages the facilities and is responsible for all operating and maintenance costs.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Nonprofit Institutions Rating Criteria' (Aug. 10, 2011);
--'U.S. College and University Rating Criteria' (July 26, 2011);
--'Revenue-Supported Rating Criteria' (June 20, 2011);
--'Georgia Tech Athletic Association' (Nov. 12, 2010).
Applicable Criteria and Related Research:
Nonprofit Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648053
U.S. College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=640830
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
Georgia Tech Athletic Association (Development Authority of Fulton County)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=573625
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