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Rating Update:

MOODY'S EXTENDS WATCHLIST FOR POSSIBLE DOWNGRADE ON AMERICAN SOCIETY FOR TECHNION'S (NY) Baa2 UNDERLYING RATING

13 Jun 2011

THE SOCIETY HAS APPROXIMATELY $11.7 MILLION OF RATED DEBT

New York City Industrial Development Agcy, NY
Not-for-Profit Organization
NY

Opinion

NEW YORK, Jun 13, 2011 -- Moody's Investors Service has extended its Watchlist for possible downgrade on the American Society for Technion's (ATS) Baa2 underlying rating. 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/SG based on the joint support of ATS and a letter of credit (LOC) from Allied Irish Banks (rated Ba2). The rating remains on Watchlist for potential downgrade reflecting the heightened liquidity risks associated with the ATS's variable rate demand debt and failure of ATS to secure a replacement liquidity facility. 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 refund or retire the debt and to regularly monitor the Society's unrestricted cash position.

SUMMARY RATINGS RATIONALE

The Baa2 underlying rating reflects the heightened liquidity risks associated with the American Society for Technion's debt structure, the failed efforts to secure a replacement liquidity facility, 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

RECENT DEVELOPMENTS:

Liquidity risks associated with ATS's variable rate demand bonds remains elevated due to the rating of the bank providing the letter of credit and management's inability to replace the liquidity facility. ATS has experienced two failed remarketings of its bonds in 2011 - one in February and another in May. In both cases, all bonds were successfully remarketed within two business days following the failed remarketing. Had the bonds not been subsequently remarketed, ATS would have drawn on the Letter of Credit from Allied Irish Banks and been required to repay the bank the full amount of the Series 2003 bonds ($11.6 million) within a very short time frame, 15 days.

As of March 31, 2011, management reports that the Society has $12.8 million of unrestricted cash and investments that could be liquidated within a day. The Society has recently generated near break-even operating margins (1.1% in FY 2010 according to Moody's calculation) providing limited additional unrestricted resources to address the accelerated payment schedule. If ATS's unrestricted liquidity were to deteriorate, the rating would be pressured. We continue to monitor the status of the remarketing of ATS's bonds as well as the Society's unrestricted liquidity.

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 cover debt by 32.5 times based on FY 2010.

The continuation of the Watchlist reflects management's change in plans to address the liquidity risks associated with its debt. Management has not been successful in finding new bank to replace the Allied Irish Banks' letter of credit and has now resolved to refund the Series 2003 bonds through a line of credit. ATS is in discussions with a bank for the line of credit, but terms have not yet been defined. Management expects to finalize the line of credit in July and is concurrently seeking approval from the Finance Committee to use the endowment as security for the line of credit. Management also reports that ATS was advised by the Office of the Attorney General that no prior approval from the office is required for the planned transaction. Management's continued inability to execute a plan to address the liquidity risks associated with the Series 2003 bonds could pressure the rating.

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: 13.5 times

Expendable Financial Resources to Operations: 3.12 times

Monthly Unrestricted Liquidity: $16.6 million

Monthly Liquidity to Demand Debt: 181%

Three-Year Average Annual Operating Margin: 0.5%

Three-Year Average Debt Service Coverage: 2.35 times

Reliance on Gifts (% of Operating Revenue): 76.3%

Reliance on Investments (% of Operating Revenue): 23.7%

RATED DEBT:

Series 2003: Baa2 underlying; Baa1/SG (Letter of Credit from Allied Irish Bank, expires May 8, 2012)

CONTACTS

American Society for Technion: Michael Schementi, Vice President- Finance, 212-407-6315

PRINCIPAL METHODOLOGY USED

The rating on the Series 2003 bonds was assigned by evaluating factors believed to be relevant to the credit profile of American Society for Technion such as 1) the business risk and competitive position of the issuer versus others within its industry or sector, 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 issuer's history of achieving consistent operating performance and meeting budget or financial plan goals, v) the nature of the dedicated revenue stream pledged to the bonds, vi) the debt service coverage provided by such revenue stream, vii) the legal structure that documents the revenue stream and the source of payment, and vii) the issuer's management and governance structure related to payment. 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.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information and confidential and proprietary Moody's Investors Service information.

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.

Analysts

Eva Bogaty
Analyst
Public Finance Group
Moody's Investors Service

Karen Kedem
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 EXTENDS WATCHLIST FOR POSSIBLE DOWNGRADE ON AMERICAN SOCIETY FOR TECHNION'S (NY) Baa2 UNDERLYING RATING
No Related Data.
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