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Rating Action:

Moody's affirms Carnegie Endowment for International Peace's (DC) Aa2; outlook stable

Global Credit Research - 15 Nov 2013

Endowment has $33M rated debt outstanding

New York, November 15, 2013 -- Moody's Investors Service has affirmed the Aa2 underlying rating for the Carnegie Endowment for International Peace's (CEIP or Endowment) $33.3 million Series 2006 Multimodal Revenue Bonds. The outlook is stable. The Aa2 rating reflects the Endowment's leading position as a foreign policy think tank with a global presence, financial resources that provide multiple coverage of debt and operations, and recent deficit operations driven by elevated endowment draws supporting a rapid expansion of its offices overseas.

SUMMARY RATING RATIONALE

The Aa2 rating and stable outlook reflect CEIP's financial resources which provide considerable cushion relative to debt and operations, strong reputation with a global presence, and improved fundraising. Also reflected is the large expense growth driven by the Endowment's global expansion which has driven deficit operations and the expectation that fundraising success will provide recurring operational support for CEIP's expanded operations. The stable outlook is based on the expectation that financial resources and liquidity will remain strong, fundraising efforts to raise sufficient funds to support operations by FY 2017, and no future debt will be assumed in the foreseeable future.

STRENGTHS

*CEIP has strong levels of financial resources relative to debt and operations that provide a comfortable cushion despite elevated endowment draws to finance strategic investments in the short-term. Expendable financial resources of $262.6 million at June 30, 2013 cover direct debt by 7.0 times and operations by 8.2 times.

*CEIP's leading position in global policy research helps garner important fundraising support as well as attract and keep influential and philanthropically inclined board members. Recent fundraising efforts have resulted in a marked increase in gift revenue, with average gift revenue increasing to $16.2 million in FY 2013 for the last 3 years, from $10.7 million in FY 2012 and $7.6 million in FY 2011.

*The Endowment maintains a robust liquidity profile. At FYE 2013 (ended June 30), CEIP had $70.0 million in available monthly liquidity, which translates into 822 monthly days cash on hand, or 2.25 years of operations.

CHALLENGES

*More than 90% of the Endowment's operations is derived from economically sensitive revenues, exposing CEIP's operations to market volatility. In FY 2013, 48% of revenues were from gifts and 43% from investment income.

*Operating deficits and extremely low cash flow over the last few years are unsustainable. This trend has been driven by elevated endowment draws being used to support new overseas operations. A new fundraising campaign is underway to provide endowment support for these operations.

*With CEIP's expanded global presence expenses are expected to continue to grow. However, CEIP monitors these expenses carefully and is currently fundraising to provide recurring support for operations in its overseas offices.

Outlook

The stable outlook is based on the expectation that financial resources and liquidity will remain strong, fundraising efforts to raise sufficient funds to support operations by FY 2017, and no future debt will be assumed in the foreseeable future. It also assumes that the supplemental endowment draws will be tapered off over the next few years.

WHAT COULD MAKE THE RATING GO UP

An upgrade could result from a significant increase in financial resources and improved cash flow and fundraising at consistently higher levels, along with a further reduction in debt.

WHAT COULD MAKE THE RATING GO DOWN

A downgrade could result if fundraising falls short of target by the end of the current campaign and if above-average expense growth continues. The ability to meet its $75 million campaign target by FY 2017 is a key factor that would enable the Endowment to revert to positive operations, as calculated by Moody's, and eliminating the need for supplemental draws to support operations and fundraising.

METHODOLOGY USED

The rating on Carnegie Endowment for International Peace was assigned by evaluating factors believed to be relevant to the credit profile of the Endowment 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.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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.

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.

Jenny L. Maloney
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Dennis M. Gephardt
Vice President - Senior Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Carnegie Endowment for International Peace's (DC) Aa2; outlook stable
No Related Data.

 

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