Fitch Ratings has affirmed the 'BB-' rating on the
The Rating Outlook has been revised to Stable from Negative.
RATING RATIONALE
The Outlook revision to Stable reflects the parking system's steady revenue recovery trends that have exceeded 90% of pre-pandemic levels since
The Stable Outlook also reflects execution of a corrective action plan agreement that extends the cure period for repayment of the
The rating reflects the system's underlying market and constrained financial profile given the elevated aggregate leverage, which has led to increased risk related to asset preservation should cashflows prevent adequate levels of fund asides for capital and maintenance needs. The system retains financial flexibility in the form of its surety contracts to meet short-term financial commitments. However, the system's financial capacity to meet all future obligations, including reimbursements to
Although the parking system maintains healthy coverage on a senior basis, coverage is significantly lower for subordinate obligations and has not been in compliance with coverage covenants in recent fiscal periods. The rating case reflects all-in coverage levels of approximately 1x in fiscal 2022 and remains below covenanted levels through the entirety of the forecast. Fitch expects parking system cash flows and current fund balances to remain narrow, providing limited internal resources for maintenance capex due to the low priority in the payment waterfall of capital reserve account replenishment.
KEY RATING DRIVERS
Dominant Position, Lagging Performance: Revenue Risk (Volume) - Weaker
The system includes 11 parking facilities with a total of 7,694 spaces and 1,260 spaces of on-street metered parking covering around 70% of public parking in
Rate-Making Authority: Revenue Risk (Price) - Midrange
Contracted rate schedules had provided for large upward adjustments in the initial years, followed by the current mechanism of annual escalators thereafter. Rates currently remain competitive versus the national average, but could be exposed to demand sensitivity to the extent greater than inflationary rate increases were to be needed to support revenue underperformance or increased lifecycle cost investments. Further, the approval procedures for rate adjustments above the annual escalators could see political risks which may serve to limit rate-making flexibility.
Capital Plan Exhibits Risk:
The weaker assessment reflects the system's ongoing exposures to generate excess cash flows to pay-go fund major maintenance costs as well as to replenish the capital reserve account at appropriate levels. Repayments to draws on debt service reserves tied to the junior obligations are prioritized higher than capital reserves in the system's flow of funds. Funded with bond proceeds at the original financing in 2013, a
Structural Features Have Weaknesses: Debt Structure - Midrange (Revised from Weaker)
The midrange assessment reflects the senior ranking of the 2013A bonds in the project's capital structure and the parking system's fixed rate and fully amortizing debt profile. However, overall project structural features are lacking as shown through limited requirements for liquidity and leverage protections coupled with no established operating reserves and debt service reserves funded through surety policies.
In addition, reserves for capital maintenance fall at the bottom of the cashflow waterfall, which present funding risks for ongoing capital investments. The system drew
Financial Profile
The parking system has a high aggregate leverage and an escalating debt service profile, including capital appreciation structured bonds, which requires significant revenue growth to cover increasing as well as ongoing capital needs. All-in coverage (inclusive of subordinate debt) at YE 2021 (0.9x) fell below covenanted levels for the fifth time since 2013. Fitch's rating case forecasts senior-lien coverage to average 2.4x, based on a net revenue calculation. The average coverage of total project costs, including subordinated obligations and capital needs as well as debt service reserve draw reimbursements, is less than sum sufficient at 0.9x.
PEER GROUP
The closest publicly Fitch-rated peer is
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Parking activity and revenue generation that fall below rating case expectations;
Inability to sustain adequate funding levels for asset maintenance from the capital reserve account;
Continued periods of reserve draws for the subordinate obligations and failure to adhere to the current reserve draw reimbursements under agreements with both
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive rating action is not expected in the near-term given the constrained financial profile coupled with uncertain capital needs and funding;
Over the medium term, sustained total coverage in excess of the 1.25x covenanted levels in conjunction with the demonstrated ability to build-up the capital reserve account and address expected capital needs would be supportive of a positive rating action.
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
CREDIT UPDATE
The parking system has demonstrated steady revenue recovery trends that have exceeded 90% of pre-pandemic levels since
The Commonwealth rates increased per the lease terms in 2022. In addition, the monthly garage contract rates increased in 2022, and meter rates increased in
Pandemic-related revenue shortfalls in 2020 led to draws on the Series B and Series C debt service reserve surety contract issued by
Pursuant to the Series B guaranty,
On
Similar to 2020, revenue shortfalls in 2021 led to additional draws on the Series B and Series C debt service reserve surety contract of
Parking system cash flows and current fund balances remain very narrow and provide limited internal resources for maintenance capex as replenishment of the capital reserve account is low in priority in the payment waterfall. The system does not expect to generate excess cash flows to replenish the capital reserve account until after the reserve advances are repaid to
FINANCIAL ANALYSIS
Fitch's base case incorporates management's forecast for the next five years. Revenues for 2022 are projected to recover to 95% of pre-pandemic levels, with 2023 exceeding the pre-pandemic levels. In both cases, 2021 and 2022 Series B and C debt service includes reimbursements toward 2020 and 2021 shortfalls. Under this scenario, Fitch-calculated senior DSCR averages 2.6x through 2026, while all-in DSCR averages 1.1x, below the rate covenant of 1.25x. Fitch's all-in DSCR calculation includes senior expenses pursuant to the trust indenture's flow of funds, but does not include subordinate expenses or capex needed to maintain the system. With the additional subordinate expenses and capex, DSCR is below sum sufficient, averaging 0.9x through 2026. PEDFA's all-in leverage is projected to decrease to 14.8x in 2022 and steadily drop down to 9.8x by 2026.
Fitch's rating case assumes a similar recovery level of revenues for 2022. All revenues streams are expected to reach or exceed pre-pandemic levels by 2023, except for garage revenues, which have seen a slower recovery. Total system revenues grow at a five-year CAGR of 6.3%. Fitch-calculated senior DSCR averages 2.4x throughout 2026, while all-in DSCR (net of senior opex only) averages 1.0x, which is below the rate covenant. The all-in average DSCR (net of sub opex and capex) of 0.9x is less than sum sufficient. PEDFA's total leverage is projected to decrease to 14.9x in 2022 and steadily drop down to 10.9x by 2026.
SECURITY
The series 2013A senior bonds are secured by a senior in payment gross pledge of the parking revenues (which are net of a 20% off-street parking tax to the city) generated by the capitol region parking system's facilities and meters.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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