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New Issue:

MOODY'S ASSIGNS A3 RATING TO THE NATIONAL CONFERENCE OF STATE LEGISLATURES SERIES 2010 REVENUE REFUNDING BONDS; OUTLOOK REMAINS STABLE

14 Sep 2010

CURRENT ISSUE REFUNDS ALL EXISTING RATED DEBT AND WILL BE ONLY RATED DEBT OUTSTANDING

Colorado Educational & Cultural Facs. Auth.
Not-for-Profit Organization
CO

Moody's Rating

ISSUE

RATING

Revenue Refunding Bonds (National Conference of State Legislatures) Series 2010

A3

  Sale Amount

$9,930,000

  Expected Sale Date

09/21/10

  Rating Description

Not-for-Profit Organization Revenue

 

 
Moody's Outlook   Stable
 

Opinion

NEW YORK, Sep 14, 2010 -- Moody's Investors Service has assigned an A3 rating on National Conference of State Legislatures (NCSL) $9.9 million of Series 2010 Revenue Refunding Bonds, issued through the Colorado Educational and Cultural Facilities Authority. The rating outlook is stable.

USE OF PROCEEDS: The current offering will refund NCSL's Series 2001 bonds. The 2001 bonds are the only rated debt of NCSL.

LEGAL SECURITY: Payments under the Loan Agreement are a general obligation of NCSL further secured by a debt service reserve fund (equal to 10% of the principal or $993,000) and a mortgage pledge of NCSL's bond-financed headquarters facility located in Denver.

DEBT-RELATED RATE DERIVATIVES: none

RATINGS RATIONALE

STRENGTHS

* Credit strength drawn from established and unique role as a provider of non-partisan public policy research and services to the fifty state legislatures, U.S. commonwealths and territories;

* Grant and contract revenue, which represents close to half of NCSL's operating base, is well diversified among sources, with approximately equal funding coming from federal agencies and private foundation in FY2009;

* Conservative investment policy as designed by NCSL's board of trustees, limits NCSL to invest in U.S. treasuries, Aaa-rated agencies and the top two grades of commercial paper providing the maturities of these investments are limited to no more than 270 days;

* Debt service reserve fund and mortgage pledge of Denver headquarters facility provide additional bondholder security. Management reports no additional borrowing plans.

CHALLENGES

* Balance sheet resources provide very thin support for NCSL's debt and operations, with unrestricted cash and investments supporting debt 0.43 times and operations 0.16 times. At the same time liquidity remains adequate with 63 days monthly cash on hand.

* Reliance on membership dues leave NCSL vulnerable to fiscal strength of all its constituents; despite a fee increase in FY2009, membership revenues declined (based on unaudited draft FY 2010 financial statements)

due to a weakened collection rate of 92.7% compared to 94% the previous year;

* Vulnerability to competitive landscape of research funding.

MARKET POSITION/COMPETITIVE STRATEGY: KEY PROVIDER OF SERVICES AND RESEARCH TO U.S. STATE LEGISLATURES

Moody's believes NCSL's established position as the primary representative of state legislature interests before the federal government and its role in providing bi-partisan research and technical support to the nation's state legislatures should lead to consistent member funding as well as competitive grants and contracts awards. Established in 1975 through the merger of three complimentary organizations, NCSL is technically an instrumentality of its member states.

The importance of NCSL in serving state legislatures is reflected in the fact that all 50 states, as well as each of the US territories, the Commonwealth of Puerto Rico, and the District of Columbia are members. Governance of the organization is vested with an executive committee comprised primarily of legislators and legislative staff.

NCSL provides its members with a variety of services that would be difficult and cost-prohibitive for each state legislature to duplicate on its own. For example, NCSL is uniquely positioned to provide consulting services to individual states and to respond to technical questions on a variety of topics given its current knowledge of policies and programs in each member state. NCSL also provides publications, such as State Legislatures and State Legislative Reports, that brief members on specific topics of interest. Further, NCSL conducts ongoing professional training and development seminars for legislative members and staff, with its annual meeting attended by over 5,000 individuals in FY2009. NCSL's main office is in Denver, CO, with 134 staff members and a smaller leased office in Washington, D.C. with less than 30 employees.

OPERATING PERFORMANCE: BALANCED OPERATIONS; DIVERSE REVENUE STREAM

NCSL's operating performance, by Moody's calculation, remains close to breakeven with cash flow typically covering debt service by just over one times. Based on FY 2009 audited financial statements, annual debt service coverage measured at 1.1 times. Preliminary FY2010 result indicate slightly stronger results and ongoing containment of operating expenses.

Approximately half of NCSL's budget is currently derived from research grants and contracts. Of the $12.5 million in grant and contract revenue in FY2009, nearly equal funding came from federal (46%) and private sources (54%). The two largest sources of grant funding was the Department of Health and Human Services and the Department of Energy. Grants and contracts funding was down 13% in FY2009 compared to FY2008 due to smaller private grant awards.

Annual membership dues are the organization's second largest revenue stream, contributing 30% of the total budget. Each state's dues are calculated using a formula based on population. The formula for state dues increased by 8% in FY2009 and 2010. Despite this increase however, FY2009 and preliminary FY2010 results indicate a decrease in membership revenues due to a higher delinquency rate. While dues collection have historically exceeded 90%, due to the current fiscal challenges at many states, the annual collection rate declined to 93% in FY2009 and 89% in FY2010. NCSL accordingly adjusted budget expenses and has based the FY2011 budget on a conservative collection rate of 85%. The FY2011 budget is built on a 4% increase in membership dues. As of August, 55% of annual collections for FY2011 have been received, compared to the 30-40% historic collection rate for the same period.

NCSL's remaining revenue is derived from a variety of other sources, including among others annual meeting revenues, marketing revenues, consulting services, and professional training fees

BALANCE SHEET POSITION: THIN FINANCIAL RESERVE BASE BUT NO ADDITIONAL BORROWING ANTICIPATED

NCSL's financial reserve base is relatively thin but adequate given the organization's historically stable operating performance and our assessment of the likely continued member support. Total unrestricted cash and investments totaled $4.5 million at the end of FY 2010, covering debt by 40% or providing 64 monthly days cash on hand. In addition, the NCSL Foundation assets of $560,195 as of FY2009 are limited, but available to the NCSL on an unrestricted basis and are held in cash, and not included in our financial ratios. Given basically break-even operating performance, we anticipate only modest growth in financial reserves over time.

All of NCSL's investments are highly liquid and conservatively invested. NCSL is authorized to invest funds in federally secured or guaranteed obligation, as well as money market mutual funds that invest solely in any federally secured or guaranteed obligations. In addition, NCSL can invest in the top two grades of commercial paper providing the maturities of these investments are limited to no more than 270 days.

The current issue will refund the Series 2001 bonds which were used to construct a new headquarters facility on the former Lowry Air Force base in Denver. NCSL has no additional borrowing plans. The Lowry campus, which is located near downtown Denver, is developing into a business and residential community. The headquarters is fully constructed and occupied and we believe is a significant asset in the unlikely event of severe financial stress at the organization.

Outlook

The stable outlook reflects our expectation that NCSL will maintain its solid market position as the leading provider of its services to state legislatures and that annual cash flow will continue to provide adequate debt service coverage.

What could change the rating-UP

Growth of financial resources to better cushion debt and operations coupled with generation of stronger annual cash flow

What could change the rating-DOWN

Increased competition from other organizations providing services similar to NCSL thereby hurting NCSL's market position; additional borrowing; declining grant or membership fee revenue streams resulting in operating deficits

KEY INDICATORS (FY 2009 financial data)

Total Financial Resources: -$830,000

Unrestricted Cash and Investments: $4.5 million

Pro-forma Direct Debt: $9.9 million

Total Resources to Debt: -0.08 times

Total Cash and Investments to Debt: 0.4 times

Total Cash and Investments to Operations: 0.16 times

Average Debt Service Coverage: 1.23 times

Reliance on Grants and Contracts: 49%

Reliance on Membership Dues: 31%

RATED DEBT

Series 2010 bonds: A3

CONTACTS

NCSL: Mary Wild, Chief Financial Officer, 303-364-7700

Underwriter: Robyn Moore, George K. Baum & Company, 303-391-5495

METHODOLOGY AND LAST RATING ACTION

The rating on the Series 2010 bonds was assigned by evaluating factors believed to be relevant to the credit profile of the National Conference of State Legislatures such as i) the nature of the dedicated revenue stream pledged to the bonds, ii) the capital structure and financial risk of the issuer, iii) the projected performance of the issuer over the near to intermediate term, iv) the business risk and competitive position of the issuer versus others within its industry or sector, v) the financial performance and position of the issuer, vi) the issuer's management and governance structure. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

The last rating action with respect to the National Conference of State Legislatures was on February 23, 2007 when Moody's affirmed the municipal finance scale rating of A3 with a stable outlook. That rating was subsequently recalibrated to A3 with a stable outlook on May 7, 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning 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.

Analysts

Amy Tanaka
Analyst
Public Finance Group
Moody's Investors Service

Kimberly S. Tuby
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS A3 RATING TO THE NATIONAL CONFERENCE OF STATE LEGISLATURES SERIES 2010 REVENUE REFUNDING BONDS; OUTLOOK REMAINS STABLE
No Related Data.
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