Fitch Downgrades Robert W. Woodruff Arts Center (Georgia) Revs to 'A'; Outlook Negative
SANTIAGO, Chile-(Business Wire)-February 10, 2009 - Fitch Ratings downgrades the underlying long-term rating to 'A' from 'AA-' on approximately $187.6 million of outstanding revenue bonds issued on behalf of the Robert W. Woodruff Arts Center Inc.'s (the Center), Georgia. Revenue bonds are an unsecured general obligation of the Center, payable from all legally available funds. The Rating Outlook is revised to Negative from Stable.
The downgrade reflects the Center's continuing, significant operating losses, which have largely been addressed through more aggressive investment allocations to less liquid alternative asset classes rather than through core changes to the Center's business model. As a result of both the continuing deficits and valuation declines in a less liquid portfolio, the Center's liquidity levels are no longer consistent with the 'AA' rating category. Further credit stress is created by the Center's aggressive use of variable-rate debt, which is supported by external liquidity agreements, four of which need to be renegotiated over the next five months. Fitch will monitor this aspect of the credit closely.
The Negative Rating Outlook reflects the limited ability of the Center over the next one to two years to reverse negative operating trends in the current economic environment. In addition, material improvements in liquidity will be difficult given the potential for further financial market turbulence which may continue to erode and/or severely limit appreciation of invested fund balances. Without a sustained stabilization in annual operating performance, the Center will be forced to rely more heavily upon available reserves to service its future debt burden.
The Center's operations have been increasingly negative since 2005. The Center's fiscal 2008 operating margin was negative 25.3% compared to negative 15.7% in fiscal 2007. Total available funds (total cash and investments less permanently restricted net assets) totaled $219 million for fiscal year ending May 31, 2008, including a $353.7 million portfolio of managed investments. This level of liquidity covered the Center's fiscal 2008 operations approximately 1.98 times (x), and total long-term debt 1.08x. However, if the Center's illiquid and quasi-illiquid alternative investments and remaining committed capital are subtracted from this available funds figure, these liquidity ratios fall to 1.57x and 0.86x, respectively. As of Dec. 31, 2008, the Center's total investment portfolio had declined 29.8% to $248.4 million, contributing to an estimated available funds figure of $156 million prior to any reductions for illiquid private equity holdings and related committed capital.
The Center's revenues are generated by its four operating components - the Alliance Theatre, Atlanta Symphony Orchestra, the High Museum of Art, and Young Audiences, Woodruff Arts Center. Despite the capital improvements made to its different venues, the Center continues to experience soft demand trends which may prove difficult to boost in the current economy.
The Center is a Georgia nonprofit corporation founded in 1968. The Center's main campus is located on approximately 11 acres in a six-block area of midtown Atlanta, GA.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
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