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Rating Action:

Moody's revises Woodruff Arts Center's (GA) outlook to negative and affirms A2

26 Nov 2013

$188M rated debt

New York, November 26, 2013 -- Moody's Investors Service has affirmed the A2 rating on the Robert W. Woodruff Arts Center Inc. Series 2009A and 2009B revenue bonds and has changed the rating outlook to negative from stable. The primary driver of the move to a negative outlook is the ongoing operating deficits due to the fiscal imbalance of the center's symphony division. The A2 rating is based on the center's strong levels of reserves, donor support, and revenue diversity, tempered by weak operating performance and high operating leverage.

SUMMARY RATINGS RATIONALE

The A2 rating reflects the Woodruff Arts Center's (WAC) diverse market presence with $114 million of operating revenue in fiscal 2013, consistent donor support, and $375 million of total financial resources as of fiscal 2013. Challenges include a history of weak operating performance, high operating leverage with debt to operating revenues of 1.7 times for fiscal 2013, and limited prospects for earned revenue growth. The negative outlook is primarily based on the ongoing deficit operations of the Atlanta Symphony Orchestra (ASO), a division that comprised 31% of operating expenses in fiscal 2013. While other divisions are operating at close to breakeven, the ASO's deficits are an ongoing drag on overall performance. ASO deficits combined with several one-time expenses in fiscal 2013 caused a narrowing of the operating cash flow margin to just 2.1%.

STRENGTHS

*The center has a sizeable pool of financial resources with total cash and investments of $417 million for FY 2013. Unrestricted monthly liquidity of $103 million translates to a healthy 314 monthly days cash on hand.

*The WAC has an established market position as a leading cultural institution in the Southeast combining four visual and performing arts divisions into one campus.

*The center benefits from significant and ongoing philanthropic support with average gift revenue of $46 million per year over the last three years ending with FY 2013. The need to maintain donor support is crucial to long term credit health as indicated by its 36% reliance on gift revenue to fund operations in fiscal year (FY) 2013.

*The long-term financial health of the center is aided by the clear board and management focus on enhancing operating performance and implementing new efficiencies across the organization.

CHALLENGES

*The center continues to generate operating deficits driven by the performance of the symphony division with deficit operations in excess of $2 million per year. The three-year average (FY 2011 through FY 2013) operating cash flow margin of 2.9% has supported debt service by just 0.44 times. Deficit operations are expected to continue in FY 2014.

*The center has considerable operating leverage with debt to operating revenue of 1.7 times and debt service to operations of 6% in FY 2013.

*Ongoing capital needs at the center including goal of enhancing performance and public space, offset by commitment to fund needs through donor support without additional debt.

*Defined benefit pension plans of the center create ongoing cash funding needs and a $12.7 million liability for FY 2013.

Outlook

The negative outlook is based on the deficit operations of the center and challenges presented by the symphony division. Moody's will monitor how the center responds to the fiscal imbalance with key points expected in 2014 as the fiscal 2015 budget is developed and the current contract with the musicians expires in October 2014. In the absence of a plan for and preliminary positive indications of operating performance improvement, the rating could move down.

WHAT COULD MAKE THE RATING GO UP

While an upgrade is unlikely given the negative outlook, the outlook could return to stable with improved operating performance combined with a long-term plan to maintain fiscal balance while building on other fundamental strengths. These strengths include diverse earned and contributed revenue and healthy unrestricted reserves.

WHAT COULD MAKE THE RATING GO DOWN

A downgrade could result from the inability to achieve improvement in operating cash flow over time. The rating could also be pressured by a material decline in financial resources or reduction in philanthropic support.

PRINCIPAL 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.

Dennis M. Gephardt
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

Susan I Fitzgerald
Senior Vice President
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 revises Woodruff Arts Center's (GA) outlook to negative and affirms A2
No Related Data.
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