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Rating Action:

Moody's affirms Indiana State Historical Society's A3; outlook stable

Global Credit Research - 18 Oct 2013

$30M rated debt

New York, October 18, 2013 -- Moody's Investors Service has affirmed the A3 rating on the Indiana Historical Society's (society or IHS) $29.8 million of Revenue Bonds, Series 2010 issued through the Indiana Finance Authority. The rating outlook is stable. The A3 rating and stable outlook reflect a healthy cushion of unrestricted financial resources to debt and operations and ongoing financial support from the Aaa rated State of Indiana.

SUMMARY RATING RATIONALE

The A3 rating and stable outlook reflect the society's strong coverage of debt and operations from unrestricted financial reserves and continued building operations support from the Aaa rated State of Indiana. Credit challenges include a high reliance on investment income combined with an elevated endowment spend rate, high operating leverage, limited prospects for material revenue growth, and competition from cultural institutions in downtown Indianapolis.

STRENGTHS

* The society's financial resources are almost completely unrestricted and provide a considerable cushion relative to debt and operations. In FY 2012, $92 million of unrestricted financial resources provided 3.1 times coverage of $30 million of debt and 7.8 times coverage of its modest operating expenses.

*Ongoing building operations support from the Aaa rated State of Indiana and co-location on the state capital's campus provide additional credit strength. In FY 2012, state support totaled about $1.3 million or 12% of operating activity.

*The society has a conservative debt profile with one series of fixed rate amortizing bonds and no additional borrowing plans.

CHALLENGES

* The society remains highly dependent on investment income, comprising 46% of Moody's adjusted operating revenue based on FY 2012 data and is vulnerable to loss in their endowment due to market downturns and draws that exceed investment earnings.

*A high reliance on investment income combined with an elevated endowment spend rate could restrain growth of financial reserves or lead to deterioration. As opposed to a standard 5% of a three-year average spending rate, Moody's estimates a 6.1% spending rate was needed to generate 1 times debt service coverage in FY 2012.

* The society has high operating leverage and inability to generate sufficient cash flow to cover debt service. Moody's calculated operating income provided just 0.6 times debt service coverage with debt service of $2.2 million equating to 18% of operating expenses in FY 2012.

*The end of a $20 million dollar capital campaign in FY 2012 could further pressure operating performance as contributions for operations are anticipated to decrease in the next few years requiring greater flexibility for budgeted expenses.

Outlook

The stable outlook reflects our expectation that strong unrestricted financial resources, healthy liquidity and consistent building operating support from the state will provide adequate support for debt and operations. The outlook incorporates the absence of additional debt plans.

WHAT COULD CHANGE THE RATING UP

Over the longer-term, an upgrade could be driven by sustained improvement of operating performance to provide ample coverage of debt service obligations, ongoing support from the state, combined with continued strong support of debt and operations from unrestricted financial reserves.

WHAT COULD CHANGE THE RATING DOWN

A negative outlook or downgrade could result from deterioration of liquidity or financial reserves, weakening operating performance, or a material change in the relationship with the state.

RATING METHODOLOGY

The principal methodology used in this rating was Moody's Rating Approach for Not-for-Profit Cultural Institutions published in November 2004. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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.

Heidi Wilde
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 Indiana State Historical Society's A3; outlook stable
No Related Data.

 

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