Fitch Ratings has assigned a 'AA-' rating to the following senior lien revenue refunding bonds to be issued by the Detroit Regional Convention Facility Authority (DRCFA).
$155,720,000 senior lien revenue refunding direct purchase, series 2024A bonds (federally taxable);
$142,975,000 senior lien revenue refunding direct purchase, series 2024B bonds (tax-exempt); and
$110,000,000 senior lien convention facility special tax revenue refunding bonds, series 2024C (tax-exempt).
The Rating Outlook is Stable.
Additionally, Fitch has affirmed the 'AA-' rating on the DRCFA's $160 million of outstanding senior lien bonds, series 2014H-1.
Proceeds of the series 2024A bonds will be used to currently refund the DRCFA's April 2024 taxable special tax revenue subordinate lien loan purchased by J.P. Morgan. Proceeds of the series 2024B bonds will be used to currently refund the DRCFA's May 2024 tax-exempt special tax subordinate lien loan also purchased by J.P. Morgan. Proceeds of the series 2024C bonds, including anticipated premium, will be used to currently refund the DRCFA's series 2014H-1 convention facility revenue bonds issued through the Michigan Finance Authority for net present value savings. As with the loans they are refunding, the series 2024A and B bonds will be purchased by J.P. Morgan.
The proceeds of the April 2024 taxable loan being refunded were used by the DRCFA to purchase an equity interest in a limited liability company for purposes consistent with the DRCFA's powers, which include financing public improvements in the city of Detroit intended to support increased tourism and convention center activity; in this case the construction of a 600-room hotel adjacent to the convention center. Proceeds of the May 2024 tax-exempt loan were used by the DRCFA to finance a portion of the cost of road access and parking improvements on Second Street adjacent to the convention facility.
RATING ACTIONS
Entity / Debt
Rating
Prior
Michigan, State of (MI) [General Government]
Detroit Regional Convention Facility Authority (MI) /Regional Convention Revenues/1 LT
LT
AA-
Affirmed
AA-
Page
of 1
VIEW ADDITIONAL RATING DETAILS
The 'AA-' rating on the convention facility special tax revenue refunding bonds reflects growth prospects for the pledged revenue stream broadly in line with Fitch's long-term expectations for the U.S. inflation rate. The rating also reflects the substantial coverage cushion in place to absorb any future revenue volatility. The bonds' rating is capped at one notch below the State of Michigan's 'AA+' IDR, as pledged revenues are subject to appropriation by Michigan's general assembly to the Convention Facility Development Fund (CFDF) before the state treasurer can remit these funds to the bond trustee.
Pledged revenues are not derived from operations of either Huntington Place (the convention facility) or the DRCFA, but from state and regional tax levies allotted for debt service and distributed directly to the trustee. Absent the annual appropriation requirement, the bonds could potentially be rated at a level above the state's Issuer Default Rating (IDR). The state IDR caps the bond rating, but the two do not automatically move together and may be several notches apart.
Dedicated Tax Security
The bonds are limited obligations of the DRCFA payable from pledged revenues consisting of a statewide excise tax levied on sales of alcoholic spirits, a tax on hotel accommodations in Wayne, Oakland and Macomb Counties and the annual distribution of a share of statewide cigarette taxes through bond maturity. Revenues are statutorily distributed to the DRCFA by the State Treasurer from the state's Convention Facility Development Fund (CFDF) and pledged first for repayment of DRCFA debt obligations, subject to annual state appropriation.
Dedicated Tax Key Rating Drivers
Healthy Growth Prospects: Fitch considers the three pledged taxes-a portion of statewide liquor tax, a state-imposed regional accommodations tax, and an annual transfer of a portion of statewide cigarette taxes (capped at $15 million) deposited in the CFDF-to be narrow and discretionary. Aggregate revenue growth prospects over time are likely to be broadly in line with the U.S. inflation rate, warranting the 'a' assessment.
Resilient Revenue Stream: Assuming leveraging to the 1.5x additional bonds test (ABT), pledged revenues provide a substantial cushion to ensure coverage of debt service to address a moderate downturn scenario or a downturn consistent with the highest consecutive historical revenue decline. Pledged revenues performed well through the pandemic with virtually no overall revenue declines, supporting Fitch's 'aaa' assessment for resilience of the security structure.
No Direct Exposure To Convention Facility or City: The rating of the bonds is capped one notch below the state of Michigan's IDR (AA+/Stable) as pledged revenues are subject to annual appropriation by the state. Bondholder repayment is not linked to convention center operations nor to the continued operation of the DRCFA, which manages the center. The convention center and the authority charged with operating it are legally separate entities from the City of Detroit.
Dedicated Tax Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Prolonged weakness in pledged revenues caused by sustained declines in hotel patronage and/or liquor consumption that reduces growth prospects for revenues to below the rate long-term rate of inflation resulting in coverage of maximum leverage closer to 1.1x;
A multi-notch downgrade of the state's IDR could result in a downgrade of the bond rating.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Evidence of strong and sustained growth in pledged revenues above long-term historical rates that causes Fitch to reassess its view of the security's growth prospects to 'aa' or 'aaa' from the current 'a' assessment level.
An upgrade of the state's IDR could result in an upgrade of the bond rating although the rating would not automatically move with such an upgrade.
PROFILE
Michigan's economy is diverse and growing, although its longstanding strengths in automotive and affiliated manufacturing sectors remain central to the economic resource base. After a decade of persistent economic weakness prior to the Great Recession resulting from extensive restructuring of the state's manufacturing sector and a near-collapse of the domestic auto industry, Michigan's economy has stabilized. Labor force and population growth have resumed, and structural changes to the automotive sector have improved the economy's longer-term viability. Recent economic performance has approximated or exceeded that of the U.S. across a broad range of indicators.
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.
Additional information is available on www.fitchratings.com
JPMORGAN CHASE & CO. 
