NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB' rating on the following series of bonds issued by the Maryland Industrial Development Financing Authority on behalf of the National Aquarium in Baltimore, MD (NAIB, or the aquarium):
--$11.415 million variable rate demand revenue bonds, series 2002 A;
--$16.14 million economic development fixed rate revenue bonds, series 2002 B.
The series 2002 A variable rate bonds are supported by an irrevocable, direct pay letter of credit provided by Bank of America, N.A. (rated 'A/F1' by Fitch). NAIB plans to refinance both the fixed and variable rate bonds with a direct bank loan at the end of June 2012, which will not carry a Fitch rating.
The Rating Outlook is Stable.
SECURITY
The bonds are a general obligation of NAIB and the separately incorporated, though related, National Aquarium in Baltimore Foundation.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'BBB' rating continues to reflect a trend of positive and improving operating results, adequate liquidity ratios and a manageable debt burden. Inconsistent attendance and ongoing capital needs somewhat counterbalance the aforementioned factors.
ELASTIC DEMAND PROFILE: Attendance at the aquarium tends to be somewhat volatile, with certain unpredictable variables, including weather and animal health, contributing to fluctuations in attendance. Reliance on tourism revenues, which tend to be discretionary, also exposes NAIB to economic conditions in the region.
NO FURTHER DEBT PLANS: Though the aquarium has ongoing capital needs to maintain its facilities, it does not plan to issue any additional debt to finance these projects. Public funds, private philanthropy and accumulated operating surpluses will fund the full scope of NAIB's future needs.
CREDIT PROFILE
In fiscal 2011, which concluded on Dec. 31, NAIB's operating performance improved to 2.5%. This marked the third consecutive fiscal year of break-even or better operating results, and the third consecutive year of financial improvement. Fitch views this trend positively, particularly as the aquarium has had to overcome pressures in its primary, attendance-driven revenue streams to generate these results.
Attendance-related revenues provided 68.5% of total operating revenues during fiscal 2011. Despite a strong start in the first quarter of 2011, attendance for the year totaled just 1.37 million - a ten-year low. This marked a 2.4% decrease versus fiscal 2010 and a 12.7% decrease from the high achieved in fiscal 2006. A variety of factors contributed to the low attendance, including economic pressures, ongoing animal health issues that required the suspension of dolphin shows, two natural disasters in the fall and increased leisure competition in the form of Baltimore's inaugural Grand Prix over Labor Day weekend.
In response to the declining attendance, management took a variety of measures to stimulate demand. One of these measures, a new advertising campaign, is focused on enhanced marketing of the overall aquarium experience and recapturing visitors lost due to the lack of dolphin shows. This campaign has been led by a new chief marketing officer, who came on board in late 2011. NAIB has also been leveraging social media to support the campaign, an effort headed by a new media relations manager who was hired in early 2012. Compared to the same time period in fiscal 2011, attendance for the first quarter of fiscal 2012 is up 14.3%, suggesting that the strategies are gaining traction. These results also lend credence to the fiscal 2012 budget, which indicates continued improvement over fiscal 2011.
Despite the $1.1 million surplus generated in fiscal 2011, NAIB's available funds, or cash and investments not permanently restricted, declined by 5.4% to $29.2 million. The decline resulted from planned spending on certain capital improvements. The decline did not materially impact the aquarium's financial cushion, as available funds represented 68% of operating expenses and 69.4% of total outstanding debt in fiscal 2011 compared to 69.7% and 71.1%, respectively, in fiscal 2010.
NAIB's debt burden is moderate, as maximum annual debt service (MADS) of $2.4 million (due in 2013) represented 5.5% of fiscal 2011 operating revenues. Fitch considers this to be manageable, given that net income available for debt service has covered MADS, on average, by 3x over the past five fiscal years; MADS coverage was 3.6x in fiscal 2011. Fitch expects NAIB's current debt burden and ability to service the related obligations to remain steady over time. Though NAIB's debt portfolio is somewhat aggressive for its rating level, with variable rate demand bonds comprising 41.4% of all outstanding bonds, management is close to finalizing a debt refinancing that would eliminate the typically associated risks. Management has already indicated that accumulated operating surpluses, rather than additional debt, will serve as the most likely source of future capital funding. Additionally, where possible, NAIB will continue its policy of matching project costs with available public monies, including grants and fundraising proceeds.
The aquarium consists of the original Pier 3 Building, which opened in 1981 and was expanded in 2006, and the adjacent Marine Mammal Pavilion, which opened in 1990. Together these buildings occupy approximately 310,000 square feet of space on a 5.8 acre campus in the Inner Harbor of Baltimore. The city of Baltimore owns the land and building that house the aquarium, and leases both to the aquarium for a cost of $1 per year under a lease expiring in 2049. The lease contains five, automatic 10-year renewals.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
'Fitch Affirms National Aquarium (Baltimore, MD)GOs at 'BBB'; Outlook Stable', June 7, 2011;
'Revenue Supported Rating Criteria', June 20, 2011;
'Nonprofit Institutions Rating Criteria', Aug. 10, 2011.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
Nonprofit Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648053
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