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Rating Action:

Moody's upgrades Roman Catholic Diocese of Austin's (TX) rating to Baa1 from Baa2; outlook is stable at the higher rating level

22 May 2013

Diocese has $82.3 million in rated debt outstanding

New York, May 22, 2013 -- Moody's Investors Service has upgraded the Roman Catholic Diocese of Austin's underlying rating on its Variable Rate Revenue Bonds, Series 2005 to Baa1 from Baa2. The bonds were issued through the Capital Area Cultural Education Facilities Finance Corporation, and were converted to fixed rate mode in April 2010. The rating outlook is stable at the higher level.

SUMMARY RATING RATIONALE

The upgrade to Baa1 reflects the Diocese of Austin's position as a growing Roman Catholic diocese in the demographically vibrant Austin region, its effective governance and management practices with strong fiscal oversight and reporting, and its consistently favorable operating cash flow generation providing adequate debt service coverage and strong unrestricted liquidity. These strengths are offset by a very high debt burden relative to its diocesan operations, a dependence on parish collection revenues to fund debt service and repayments on loans, and its vulnerability to litigation risk. The stable outlook reflects expectations of continued positive operating cash flow and adequate debt service coverage, modest growth in balance sheet resources and no new debt for the next few years.

STRENGTHS

*Effective governance and management, with strong oversight by the Bishop and Central Administrative Office (CAO) over parishes and of diocesan finances and reporting.

*Location in the demographically and economically vibrant Austin region with strong population and Catholic membership growth, rising over 34% to 536,000 members in 2012 since 2005 and representing nearly 19% of the area population.

*Strong unrestricted liquidity, with monthly liquidity of $57.4 million representing 87% of total cash and investments and translating to over 685 monthly days cash.

*Consistently favorable operating performance and strong cash flow generation reflecting effective expense management, with a three-year average operating margin of 13.4% for fiscal year (FY) 2010 -- 2012, as calculated by Moody's. Operating cash flow was very strong with a 31.2% margin for FY 2012, and provided adequate debt service coverage of 1.54 times for the year.

*No debt plans for the foreseeable future.

*Successful completion of last fundraising campaign, raising $61 million against the $45 million goal and providing funds to establish foundation now with $22 million of endowment investments.

CHALLENGES

*High debt relative to balance sheet resources and revenues. Including $11.2 million of parish loans guaranteed by the diocese, expendable resources to debt is adequate at 0.57 times, but debt to revenues is very high at 2.56 times. The leverage would improve if factoring in the revenues and balance sheet assets of the parishes, the source of the funds paying debt service.

*Modest financial resources with a very young Diocesan Investment and Loan Program (DIAL) initially established with the proceeds of the Series 2005 bonds and a $20 million bank line of credit. The diocese loans funds through the DIAL to the parishes to address capital needs related to growth.

*Vulnerability to changes in economic conditions that can impact operating cash flow, as parish collections and assessments tend to track the economic health of the membership.

*Potential exposure to litigation for sexual misconduct lawsuits. However, the diocese reports no outstanding claims and has well-established policies and procedures in place for dealing with sexual abuse claims.

*Growing demographics in region likely to create additional need to invest in capital although the diocese has no debt plans for the foreseeable future.

OUTLOOK

The stable outlook reflects expectations of continued positive operating cash flow and adequate debt service coverage, modest growth in balance sheet resources and no new debt for the next few years. However, the rating outlook could be pressured if the number of claims or the settlement amounts are greater than expectations and established reserves.

WHAT COULD MAKE THE RATING GO UP

Substantial growth in financial resources with no new debt to provide a stronger cushion for debt and annual operations; continued growth in revenue base while maintaining consistently favorable operating performance.

WHAT COULD MAKE THE RATING GO DOWN

An extended period of weak operating performance or a substantial decline in liquidity; increase in debt without commensurate growth in financial resources; emergence of a number of lawsuits resulting in a negative financial impact on the credit profile.

PRINCIPAL METHODOLOGY USED

The rating on the Diocese of Austin's bonds was assigned by evaluating factors believed to be relevant to its credit profile 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.

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.

Diane F. Viacava
VP - Senior Credit Officer
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

Eva Bogaty
Asst Vice President - 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 upgrades Roman Catholic Diocese of Austin's (TX) rating to Baa1 from Baa2; outlook is stable at the higher rating level
No Related Data.
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