DALLAS — The YMCA of Greater Houston is in danger of losing its investment-grade rating from Moody’s Investors Service due to terms in a letter of credit from Bank of America, analysts said.
The YMCA has $196.4 million of outstanding variable-rate debt issued through the Harris County Cultural Education Facilities Finance Corp. The Series 2008 bonds, rated Baa3 by Moody’s, are supported by LOCs with three banks: Bank of America, JPMorgan Chase and Compass Bank.
Counterparty risk for Bank of America, rated A3 by Moody’s, was “elevated” in light of the YMCA’s “thin liquidity and weak operating performance,” analysts wrote in a report issued Tuesday.
The rating agency expects to decide by November whether the nonprofit will receive a downgrade to junk status. During that time, the YMCA is working on a plan to restructure its debt, analysts noted.
“Our review will include an assessment of the degree to which the YMCA’s debt restructuring plan reduces the risks related to its variable-rate debt and the ability of the YMCA to generate sufficient operating revenue to support the restructured debt,” wrote Moody’s vice president and senior analyst Jenny L. Maloney.
LOC provisions require the YMCA to repay any term loan within one year to Bank of America and Compass Bank if coverage levels reach certain thresholds. The YMCA would have two years to repay the debt under the letter of credit with JPMorgan Chase, rated Aa3 by Moody’s.
The YMCA’s debt was 1.91 times operating revenues in fiscal year 2011, according to Moody’s, while expendable financial resources were only 32% of debt.
The Moody’s report cited “limited prospects for balance-sheet growth since all investments are in fixed income and the YMCA continues to generate operating deficits.”
The YMCA has 37 centers, one camp, 246 licensed childcare sites, and 15 apartment outreach centers located throughout the Houston metropolitan area.
All major capital projects for which the 2008 bonds were issued have been completed, according to Moody’s. Fiscal year 2012 is the first during which all buildings are completed and operational.
“Despite slower than projected membership growth, membership revenues are estimated to be modestly higher than that of last year’s,” analysts wrote.
