Fitch Ratings has affirmed the 'BB-' rating on the
The Rating Outlook is Negative.
RATING RATIONALE
The Negative Rating Outlook reflects the narrow liquidity position of the parking system, which has been further challenged by reimbursements to
The rating reflects the system's continued revenue underperformance and more constrained financial profile, which has led to increased risk related to asset preservation. In the short term, PEDFA's financial commitments are currently being met. However, the system's financial capacity to meet all future obligations, including reimbursements to
The rating case reflects all-in coverage levels well below sum sufficiency in 2021, and below covenanted levels through the entirety of the forecast. The rating is further constrained by high leverage and total cost obligations, minimal liquidity, limited capital funding and uncertain rate-making flexibility to raise rates due to the political climate. Parking system cash flows and current fund balances 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 provide for large increases in the initial years, followed by annual escalators thereafter. Rates currently remain competitive versus the national average, but could become uncompetitive to the extent greater than inflationary rate increases were to be needed to support revenue underperformance or increased lifecycle cost investments. Further, political risk may serve to limit rate-making flexibility.
Capital Plan Exhibits Risk:
The weaker assessment reflects the system's foreseen inability to generate excess cash flows to replenish the capital reserve account until the end of 2023. Repayments to the debt service reserves, which is expected to be complete by 2023, are prioritized higher than capital reserves in the system's flow of funds. Funded with bond proceeds, a
Future funding of capex may rely on additional leveraging as internal funding is structurally dependent on excess cash flow following all other required deposits as the reserve is tapped. In the medium term, management expects to spend
Structural Features Have Weaknesses: Debt Structure - Weaker
While the 2013A bonds are senior ranking in the project's debt profile, structural features are lacking as shown through limited requirements for liquidity and leverage protections, no established operating reserves and debt service reserves funded through surety policies. In addition, reserves for capital maintenance fall at the bottom of the cash flow waterfall, which present funding risks for ongoing capital investments. The system drew
Financial Profile
The system has an escalating debt service profile, including capital appreciation, which requires aggressive revenue growth to cover increasing debt service obligations as well as ongoing capital needs. All-in coverage (inclusive of subordinate debt) at YE 2020 (1x) fell below covenanted levels for the fourth time since 2013. Fitch's rating case forecasts senior-lien coverage to average 2.3x, 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 0.8x. Liquidity also remains a concern with minimal unrestricted cash and no operating reserves.
PEER GROUP
The closest publicly Fitch-rated peer is
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Material degradation of out-year parking and revenue expectations should the pandemic result in anticipated long-term economic impairment;
Continued trend of narrow or insufficient cash flow generation;
Foreseen depletion of the capital reserve;
Delays in reserve draw repayment beyond the period outlined in bond indenture, or inability to reach reserve reimbursement agreements with
System condition report indicating deteriorating assets and/or greater annual capital needs than those currently forecast.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The Rating Outlook may return to Stable if the system re-establishes healthy debt service coverage in excess of the 1.25x covenanted levels over successive fiscal years in conjunction with healthier system liquidity.
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 pandemic has had a sizable effect on PEDFA's 2021 revenues to date. Revenues through
Monthly garage contract rates increased in March and management expects an additional increase to occur in 2022. The lease rate with the Commonwealth also increased in January. While ticket rate increases are subject to ordinance amendments with the
Management forecasts that fiscal 2021 (ending
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. Given the anticipated nearly
FINANCIAL ANALYSIS
Fitch's rating case incorporates a 17% revenue decline in 2021 relative to 2019 based on YTD performance, with progressive recovery to 2019 revenue levels by 2023. In both of the cases, 2021 and 2022 Series B and C debt service includes reimbursements towards 2020 and 2021 shortfalls. Under this scenario, Fitch-calculated senior DSCR averages 2.3x throughout the forecast period, while all-in DSCR averages 1x, well 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 0.8x through 2025. PEDFA's all-in leverage is projected to reach 17.7x in 2021 and is expected to steadily drop down to 12x by 2025.
Fitch's downside case assumes 19% revenue decline in 2021 relative to 2019, followed by recovery to 2019 levels by 2024. Fitch-calculated senior DSCR averages 2.2x throughout the forecast period, while all-in DSCR (net of senior opex only) averages 0.9x, which is below the rate covenant. The all-in average DSCR (net of sub opex and capex) of 0.7x is less than sum sufficient. PEDFA's total leverage is projected to reach 18x in 2021 and is expected to steadily drop down to 12.4x by 2025.
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.
RATING ACTIONSENTITY/DEBT RATING PRIOR
LT BB- Affirmed BB-
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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