NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A-' rating to approximately $41 million of Louisiana Public Facilities Authority revenue refunding bonds, series 2016, issued on behalf of Archdiocese of New Orleans (the Archdiocese).
The series 2016 bonds are expected to be issued as fixed rate debt. Bond proceeds will be used to refund outstanding revenue and refunding bonds, series 2007 and pay the costs of issuance. The bonds are expected to sell via a negotiated sale the week of Dec. 5, 2016.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by payments made by the Authority and the source of these payments is solely a general unsecured obligation of the Archdiocese.
KEY RATING DRIVERS
FINANCIAL FLEXIBILITY: The Archdiocese has substantial flexibility in raising revenues through increasing the fees assessed to its 111 member parishes as well as the fees charged on a per student basis for all students attending 84 affiliated schools. Further, unrestricted cash and investments is a substantial $112.5 million when compared against $41 million of direct debt, post refunding debt issuance.
ADEQUATE DEBT SERVICE COVERAGE: Since 2013, coverage of pro forma maximum annual debt service (MADS) has ranged between 1.61x and 2.09x. Pro forma MADS includes 20% of the debt service related to a $43 million senior living project guaranteed by the Archdiocese. Including 100% of the guaranteed debt, historical pro forma coverage was 1.08x and 0.99x in 2015 and 2016, respectively.
LONG HISTORY AS SOLE SERVICE PROVIDER: The Archdiocese has been in existence since 1793, incorporated in 1941, and provides support to its various affiliated entities. It holds all of the excess funds of the parishes and affiliated entities, is the required financing arm for these organizations, and procures insurance for the entities and the diocesan priests. The Archdiocese lost parishioners post-Katrina, but the number now exceeds the pre-Katrina level.
RATING SENSITIVITIES
REVENUE STABILITY: The rating is sensitive to the Archdiocese of New Orlean's continued ability to raise necessary funds from the student assessment and parish assessment, and any other means, in an amount sufficient to support debt service. Should there be a decline in parish revenue raising abilities and/or large declines in student enrollment, available funds may be pressured.
LIMITED USE OF THE GUARANTEE: The Archdiocese's ability to refrain from guaranteeing further debt is assumed in the rating in conjunction with the lack of additional debt plans. Any deviation from either of these assumptions, without a commensurate increase in financial resources, would likely pressure the rating and/or outlook. One such guarantee is the debt issued for St. Anthony's Garden, a senior living housing project ministry. This guarantee is expected to roll off in the near term.
CREDIT PROFILE
The Roman Catholic Church of the Archdiocese of New Orleans has a long operating history. It was first established as a diocese in 1793, became an archdiocese in 1850, and is the second oldest archdiocese in the United States. The Archdiocese operates in eight civil parishes in metropolitan New Orleans, and encompasses 4,208 square miles and 111 church parishes. In addition to the parishes, it also supports and administers 84 schools, with an estimated enrollment of 37,500. Nursing homes and other community service facilities are also sponsored by the Archdiocese.
The primary activities of the Archdiocese's Administrative Offices include the maintenance of the Deposit and Loan Fund, the administration of a centralized property and casualty insurance program, the investment of endowment funds, and the administration and funding of healthcare, auto insurance and retirement costs for priests of the Archdiocese.
Not included in the financial operations or assets of the Administrative Offices are the individual parishes, elementary and high schools, nursing homes, affordable senior living facilities, or other church-related agencies and institutions within the corporation's geographical boundaries. Also not included are the fair market values of the churches, nursing homes, affordable senior living facilities, other properties in the parishes, rectories, schools belonging to the corporation, or The Archdiocese of New Orleans Indemnity, Inc.
DEPOSIT AND LOAN FUND
A core component of the operations of the Archdiocese's Administrative Offices is the Deposit and Loan Fund. Essentially, this fund is an internal bank that was developed in 1960 as a means to provide loans to affiliated entities (i.e. parishes, schools, senior living facilities, etc.) and as a depository for the affiliated entities excess cash flow. All 111 parishes within the Archdiocese and other affiliated entities are required to keep their excess cash at the Archdiocesan level in the Deposit and Loan Fund. Each entity is allowed to keep up to 90 days cash on hand after which all excess cash is required to be transferred to this fund. In addition, all related entities are required to utilize the fund for any borrowing or financing needs.
The fund provides low interest loans to the affiliated entities for construction, renovations, and emergency needs. Management provided some details regarding the underwriting criteria, which included the borrower providing proof to the Archdiocese that: 50% of project costs are on deposit in the Deposit and Loan Fund; that 25% of the project costs are expected to come in from capital campaign pledges; and the ability to articulate how the borrower plans to repay the remaining 25%. Management reports that loans are turned down when the requirements are not met.
The interest rate on deposits equals the 90-day Treasury bill rate as of March 31, plus 100 basis points, adjusted annually on July 1. However, the loan rate is 90-day Treasury bill rate plus 400 basis points. For the year ending June 30, 2017, the Finance Council recommended and Archbishop approved, the loan interest rate of 4.3%, while the deposit interest rate is 1.3%. This spread allows the Archdiocese to fund other activities.
As of Aug. 31, 2016, there were $122 million in deposits and $73 million in net loans. Deposits in the Deposit and Loan Fund are shown as liabilities in the audit; however, they are obligations the Archdiocese owes its own parishes and function like temporarily restricted net assets that would be available for debt service.
Another potential source of liquidity is the Archdiocese's real estate portfolio. This portfolio of properties/parcels has been acquired through either the closing of parishes or through gifts and properties could be liquidated to support operations. Some of these assets, donated many years ago, are not currently included in the Archdiocese's balance sheet.
OTHER ADMINISTRATIVE OFFICE ACTIVITIES
In addition to managing the Deposit and Loan Fund, the Administrative Offices manages the insurance process for all affiliated entities, with the costs passed through to the respective organizations through an insurance assessment. Similarly, the Archdiocese provides benefits for the clergy, again with a direct pass-through assessment made to the parishes.
FINANCIAL RESOURCES
As calculated per the terms of the bond covenants, unrestricted cash and investments totaled approximately $122.5 million in 2016. This is derived from taking the total cash and cash equivalents, plus readily marketable securities less notes payable and restricted assets. This level of resources compares favorably against $57.6 million of current bonds payable, at 213% and 122% when 100% of the $43 million St. Anthony's guarantee is included as debt.
Along with this refunding, management is electing to pay down approximately $10 million of debt; therefore the unrestricted resources declines to $112.5 million, but the ratios improve to 273% of debt excluding the guarantee, and 134% including the guarantee.
Historically, maximum annual debt service coverage (MADS) of the 2007 bonds has been good, ranging from a low of 1.83x to a high of 2.38x during the past four years. When including the St. Anthony 20% guarantee, MADS coverage declines but still ranges between 1.61x and 2.09x. The most conservative stance, assuming 100% of the debt service on the St. Anthony project, MADS coverage is sufficient, ranging between 0.99x to 1.29x. These calculations were provided by the Archdiocese and are in accordance with required bond covenants.
STABILITY IN GOVERNANCE
The Archbishop, in place since 2009, is the chief administrator of the Archdiocese, with a Vicar General who is responsible for the financial and administrative services. In turn, there are three lay people who report to the Vicar General - including the chief financial officer and secretary, chief operating officer and a chief compliance officer.
In addition to these positions, the Archbishop is also advised by Archdiocesan Councils on matters of policies, procedures and practices. The Finance Council, comprised of clergy and lay people, assist in the administration and preparation of annual budgets. There are 12 members of this council, with three working committees: property, audit, and investment.
Disclosure
The corporation anticipates adopting a continuing disclosure policy prior to the bond issuance to ensure its ability to maintain compliance with the SEC Rule 15c2 12 Continuing Disclosure Requirements, including the designation of a specific officer or officers to take responsibility for all future filings of financial statements, annual financial information and operating data and event notices.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/site/re/750012
U.S. Nonprofit Institutions Rating Criteria (pub. 05 Jun 2015)
https://www.fitchratings.com/site/re/866668
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015039
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015039
Endorsement Policy
https://www.fitchratings.com/regulatory
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.