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Rating Action:

Moody's affirms YMCA of Greater Houston Area's (TX) Baa3; outlook stable

Global Credit Research - 28 Mar 2014

$108M rated debt

New York, March 28, 2014 -- Moody's Investors Service has affirmed the Baa3 underlying rating on the YMCA of the Greater Houston Area's (YMCA) Series 2013A and 2013B bonds issued through the Harris County Cultural Education Facilities Finance Corporation. The outlook is stable.

The Series 2013B bonds also carry an enhanced rating of Aa3/VMIG 1 based on Moody's joint default analysis (JDA) rating methodology and letter of credit provided by JP Morgan Chase Bank, N.A. (Aa3/P-1 stable), which has a stated expiration date of February 29, 2016.

SUMMARY RATING RATIONALE

The Baa3 rating incorporates the strong brand identity of the YMCA as a membership and service organization, geographic and programmatic diversity, and reduced liquidity risks following the restructuring of its 2008 bonds. Credit challenges include substantial balance sheet and operating leverage, low liquidity in light risks from existing financial covenants, renewal and remarketing risks associated with the current debt profile.

The stable outlook reflects expectations that operating cash flow will provide sufficient coverage of debt service, the YMCA will maintain adequate headroom under covenants, and that there are no additional borrowing plans.

STRENGTHS

*The 2013 debt restructuring of the 2008 bonds successfully concluded, materially reducing total debt ($196 million to $152 million) and demand debt ($196 million to $86 million). The restructuring plan also reduced liquidity risks by eliminating rating thresholds.

*The YMCA recorded a second year of cash flow sufficient to cover annual debt service. Growth in operating revenue resulted in an operating cash flow margin of 14% providing 2.1 times debt service coverage. Through the first half of FY 2014, results are on track for similar performance.

*The YMCA's strong brand as a membership and service organization with geographic and programmatic diversity in the demographically vibrant Houston metropolitan area provides the fundamental underpinning of its rating.

*Steady philanthropic support, averaging $13.3 million annually over the FY 2011-13 period, provides revenue diversity (8% of operating revenues in FY 2013), allowing the YMCA to promote key community wide programs.

CHALLENGES

*The YMCA is highly leveraged from a balance sheet and operating perspective, with expendable financial resources to debt at 0.40 times and debt to operating revenues at 1.30 times in FY 2013, compared to the Baa-rated not-for-profit medians of 0.9 times and 0.5 times, respectively.

*Substantial interest rate and renewal risk exists on the $86 million of variable rate debt, given the YMCA's thin liquidity and history of narrow cash flow.

*Limited prospects to build financial reserves given a history of thin cash flow and allocation of the endowment entirely to fixed income. While this allocation limits down-side risk, it also prevents growth from positive investment market performance.

Outlook

The stable outlook reflects our expectation that the YMCA generate sufficient cash flow to cover future debt service, maintain adequate headroom under financial covenants, and has no near-term borrowing plans.

WHAT COULD MAKE THE RATING GO UP

The reduction of operating and balance sheet leverage, sustained improved cash flow to better support debt service, and improved liquidity could pressure the rating or outlook upward.

WHAT COULD MAKE THE RATING GO DOWN

Negative rating pressure could result from insufficient cash flow to cover debt service, increased leverage, or inability to renew or replace liquidity facilities. Failure to meet financial covenants, leading to the acceleration of debt, would result in rapid credit deterioration.

RATING METHODOLOGY

The principal methodology used in this rating was Not-for-Profit Organizations (other than Healthcare and Education) published in March 2014. 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.

Mary Cooney
Asst Vice President - 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

Karen L Kedem
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 YMCA of Greater Houston Area's (TX) Baa3; outlook stable
No Related Data.

 

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