The bonds that backstopped the long-term parking lease in Harrisburg, Pa., received their second negative rating action in six months as Fitch Ratings revised its outlook to negative.
The lowered outlook affects $123 million of Capitol Region Parking System Series 2013A senior parking revenue bonds, Fitch said Tuesday while affirming its BBB-minus rating, the final rung above junk. The Pennsylvania Economic Development Financing Authority issued the bonds.
S&P Global Ratings in July lowered the bonds two notches to junk-level BB-plus amid a dispute between the city and parking system operators over parking revenue.
High leverage, minimal liquidity, limited capital funding, untested willingness and rate-making flexibility constrain its rating, Fitch added.
"The negative outlook reflects ongoing uncertainty over the legal structure regarding the payment stream according to the cash flow waterfall, in conjunction with revenue underperformance, which leaves funding for capital expenditure needs at risk," Fitch said in a statement. "This uncertainty is manifest in notices of default, breach of rate covenant, and ongoing disputes between parties."
Harrisburg sold its parking assets in December 2013, two months after the Commonwealth Court of Pennsylvania approved a financial recovery plan that kept the 49,000-population state capital out of bankruptcy. The system includes nine parking garages, two parking lots and about 1,200 metered on-street spaces.
For the second straight year, said Fitch, the system failed to meet its 1.25 times, all-in debt service coverage ratio rate covenant, reflecting some "transitional and operational issues." Fitch added, however, that this does not constitute default. It cited indenture-based gross coverage of the senior Series 2013A bonds at a "robust" 3.5 times in fiscal 2015, up from 3.43 times the previous year.
Structural features, according to Fitch, 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, reserving for capital maintenance falls at the bottom of the cash flow waterfall, which presents funding risks for ongoing capital investments to the extent payments toward subordinate obligations depend on county guarantee support."
