RATING ACTION AFFECTS $11.7 MILLION OF RATED DEBT OUTSTANDING
NEW YORK, Mar 23, 2011 -- Moody's Investors Service has affirmed the American Society for Technion's (ATS)
Baa2 underlying rating and has maintained the rating on Watchlist for possible
downgrade. The rating action affects $11.7 million of Series 2003 bonds which
were issued through the New York City Industrial Development Agency. The bonds
are also currently rated Baa1/VMIG 3 on Watchlist based on the joint support of
ATS and a letter of credit (LOC) from Allied Irish Banks (rated Baa3/P-3;
on Watchlist for possible downgrade). The rating remains on Watchlist for
potential downgrade reflecting the heightened liquidity risks associated with
the ATS's variable rate demand debt. We expect to review the rating again within
90 days. Over the next 90 days, we plan to focus on management's implementation
of a plan to either replace the liquidity facility supporting the tender feature
on the Series 2003 bonds or to refund or retire the debt.
SUMMARY RATING RATIONALE
The Baa2 underlying rating reflects the heightened liquidity risks
associated with the American Society for Technion's debt structure, the
prolonged response to addressing these risks, and its relatively weak
debt service coverage from annual operating cash flow. These challenges are
partially mitigated by ATS's relatively strong balance sheet cushion for debt
and operations, flexible operations and ability to respond to revenue
variability, strong relationship with the Israel Institute of Technology, and
continued solid philanthropic support.
DETAILED CREDIT DISCUSSION
LEGAL SECURITY: Payments under the Lease Agreement are a general obligation of
the Society. The Trustee for bondholders also has a first mortgage lien pledge
on the office condominium in east midtown Manhattan.
INTEREST RATE DERIVATIVES: None
On February 18, 2011, ATS's bonds experienced a failed remarketing. All bonds
were successfully remarketed on February 22, 2011. Had the bonds not been
subsequently remarketed, ATS would have drawn on the Letter of Credit from
Allied Irish Bank (rated Baa1/VMIG 3 on Watchlist) and been required to repay
the bank the full amount of the Series 2003 bonds ($11.6 million) within 15
days, if the bonds had not been remarketed within that period. We believe the
potential for additional failed remarketings remains elevated due to the
current rating of bank. As of February 21, 2011, management reports that the
Society has $15.1 million of unrestricted cash and investments that could be
liquidated within a day. The Society has recently generated near break-even
operating margin (0.6% in FY 2010 according) providing limited
additional unrestricted resources to address the accelerated payment schedule.
We note that ATS's ability to address the potential acceleration of
debt payments is limited not by the wealth of the organization, but by the donor
restrictions on its assets. In FY 2010, unrestricted financial resources
comprised 3% of total financial resources. Total financial resources covers debt
by 33.5 times based on FY 2010. Management has discussed the process under the
New York Prudent management of Institutional Funds Act ( NYPMIFA) by which the
organization could seek approval by the State Attorney General to release
restrictions on its endowment to provide additional financial flexibility.
ATS has not used this option at this time. In addition, Management has
approached the Board regarding acceleration risk and the Board has identified a
few key donors that would be willing to invest in the bonds.
Management continues to evaluate options to mitigate the risks associated with
ATS's variable rate demand debt. We believe given the heightened liquidity risks
to the organization as well as the relatively elevated interest rate costs,
Management should push for timely resolution of the LOC replacement. Currently,
management reports that it is in discussion with three banks to replace the
Allied Irish Bank Letter of Credit. The Society expects to replace the
liquidity facility within the next sixty days. If a new LOC is not agreed upon,
the Board has discussed alternate plans to refund the variable rate demand debt.
Moody's will monitor the process to assess the impact of the ultimate outcome
and the final schedule of the bond repayment.
KEY DATA AND RATIOS (FY 2010 data):
Unrestricted Financial Resources:$11.9 million
Total Financial Resources: $390.3 million
Total Direct Debt: $11.7 million
Expendable Financial Resources to Direct Debt: 13.9 times
Expendable Financial Resources to Operations: 3.12 times
Monthly Unrestricted Liquidity: $15.1 million
Three-Year Average Annual Operating Margin: -1.2%
Three-Year Average Debt Service Coverage: 0.73 times
Reliance on Gifts (% of Operating Revenue): 71.9%
Reliance on Investments (% of Operating Revenue): 28.1%
Series 2003: Baa2 underlying; Baa1/VMIG 3 (Letter of Credit from Allied Irish
Bank, expires May 8, 2012)
American Society for Technion: Michael Schementi, Vice President- Finance,
PRINCIPAL METHODOLOGY USED
The rating on the American Society for Technion (ATS) was assigned by evaluating
factors believed to be relevant to the credit profile of ATS such as 1) the
business risk and competitive position of the issuer versus others within its
industry or sector, 2) the capital structure and financial risk of the issuer,
3) the projected performance of the issuer over the near to intermediate term,
4) the issuer's history of achieving consistent operating performance and
meeting budget or financial plan goals, 5) the nature of the dedicated revenue
stream pledged to the bonds, 6) the debt service coverage provided by such
revenue stream, 7) the legal structure that documents the revenue stream and the
source of payment, and 8) the issuer's management and governance structure
related to payment.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, parties not involved in the ratings, public
information, and confidential and proprietary Moody's Investors Service
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of maintaining a credit rating.
Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.
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Moody's Investors Service
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MOODY'S AFFIRMS AMERICAN SOCIETY FOR TECHNION'S (NY) Baa2 UNDERLYING RATING; RATING REMAINS ON WATCHLIST FOR POSSIBLE DOWNGRADE
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