NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms its 'A' rating on approximately $85.29 million of City of Los Angeles' Special Parking Revenue Fund (SPRF) outstanding parking facilities bonds, series 1999A and 2003A (the bonds). The Rating Outlook is Stable.
KEY RATING DRIVERS:
Monopolistic Position: The parking system benefits from a monopolistic position over essential street parking spaces and garages located in Los Angeles' central business, commercial center, and entertainment districts.
Competitive Pricing: The parking system offers competitively priced parking rates with retained flexibility to raise rates and meet financial obligations. Demand has been steady through the recent economic downturn, particularly for meters.
Moderate Structural Protections: The parking system has a sound additional bonds test at 1.5x maximum annual debt service (MADS). However, although never invoked, the city has the ability to designate new or existing parking facilities as off-system subject to meeting a 1.25x rate covenant test, which could negatively affect pledged revenue generation.
Low Leverage and Strong Debt Service Coverage: The SPRF's low leverage of 1.5x net debt-to-cash flow available for debt service (CFADS; excluding capex) permits the funding of capital needs on a pay-as-you-go basis. The system has a level-to-declining debt service profile, and current revenues generate solid debt service coverage ratios (DSCR) at or above 2.0x, allowing the system to be less reliant on parking rate adjustments. The fiscal 2013 budget calls for the issuance of commercial paper in November 2013 to call and redeem all outstanding parking revenue bonds.
Some Refurbishment Needs: The system is addressing its capital and refurbishment needs, with meters to be replaced on a five-year cycle and structures to be refurbished on a seven-year cycle. The SPRF's plan through 2017 totals $35 million.
Material departure from the city's forecast, or deterioration in the city's financial position that results in additional draws on parking fund liquidity, may pressure the rating.
Should the pace of economic recovery negatively affect demand and pricing for parking facilities, negative rating pressure may result.
Failure by the city to continue with asset maintenance and reinvestment may weaken credit quality.
SPRF debt is secured on a gross lien basis, before operations and maintenance on the system, or capital requirements. No tax or other city revenue is pledged. The SPRF was established by ordinance in 1972, amended in 1998 and codified under Los Angeles Administrative Code and is a special fund of the city and not an enterprise fund. Under the Master Trust Indenture, the city's obligation to pay debt service from parking revenues is unconditional and irrevocable. In spite of the legal gross lien, Fitch's analysis focuses on the parking system as a viable enterprise and hence on debt service coverage on a net revenue basis.
In fiscal 2012, SPRF's parking receipts increased by 17.8% over 2011; this builds upon growth of 17.4% in the previous year. Net revenues grew 38.1% in fiscal 2012 and 4.7% in 2011, reflecting reductions in expenses and the city's investment in upgrading a large portion of the asset base with enhanced revenue control technology.
Assets within the SPRF parking system produce strong cash flows, resulting in debt service coverage levels of over 2.0x from fiscal year 2005 to present and adequate capacity to fund capital needs on an ongoing basis. Debt service coverage, when calculated on a net revenue basis, generated 4.74x debt service coverage in fiscal 2012, up from 3.44x in 2011 and higher than prior years. For fiscal 2013, based on the city's budget, debt service coverage will be above 3.0x, which is better than historical performance. The parking system also benefits from relatively low leverage, with net debt-to-CFADS of 1.5x for fiscal 2012 (1.8x when capex is included). The city's fiscal 2013 budget calls for the issuance of commercial paper in November 2013 to call and redeem all outstanding parking revenue bonds.
The city is addressing capital needs within the parking system and working to enhance revenue generation with the implementation of new parking access and revenue control systems. The current fiscal year's budget includes $6 million for capital equipment purchases, some of which will be spent on upgrading single-space parking meters with credit card capabilities. Management expects the resulting revenue to offset the cost of implementing the program. Capital Equipment Purchases in the system's five-year O&M plan total $35 million from 2013 to 2017. The system is also pursuing cyclical replacement of parking meters (every five years) and refurbishment of facilities (every seven years.)
Demand for SPRF's assets, particularly meters, proved to be resilient through the recent economic downturn. Spaces within the city's parking system are dominated by parking meters (representing nearly 83% of the city's 47,589 available parking spaces in 2011), which due to the ease of use and competitive parking rates, provide a very stable component of its revenue stream, allowing the system's finances to be largely resilient to the competitive forces for downtown parking garages and lots.
The SPRF receives all monies, income, and investment earnings derived from operations of the on-street and off-street parking meters in the city and the parking lots, garages, and structures owned by the city except for excluded facilities, which according to the master indenture are defined as parking lots, garages, and other parking structures owned by the city and operated by the Los Angeles Department of Airports, the Los Angeles Department of Water and Power, the Los Angeles Harbor Department, the Los Angeles Convention and Exhibition Center, and the Community Redevelopment Agency of the City of Los Angeles.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (Jul. 12, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance