DALLAS — Standard & Poor’s on Thursday downgraded the Dallas Center for the Performing Arts Foundation one notch to the lowest investment-grade rating of BBB-minus, citing ongoing budget shortfalls and management problems.
“The downgrade reflects our view of the lack of continuity and high turnover in the senior management team, combined with continued operating deficits due to, in our opinion, difficulty in managing demand and programming, in addition to continued delays in achieving the long-term fundraising goal,” said Standard & Poor’s analyst Bianca Gaytan-Burrell.
The foundation issued $150 million of revenue bonds in 2006 and another $150 million in 2008 through the Dallas Performing Arts Cultural Facilities Corp.
The performing arts center in downtown Dallas opened in 2009 and includes the 2,300-seat Winspear Opera House, the 600-seat Dee and Charles Wyly Theatre, the Annette Strauss Artist Square and a 10-acre Performance Park, as well as two underground parking garages.
Like other nonprofit performing arts organizations, Dallas’ has been hard hit by the recession.
“Although we expect improved operating performance in the next few years, the foundation still expects deficits,” Gaytan-Burrell noted. “Because of the weak operating performance combined with low financial resource ratios, high maximum annual debt service burden and limited fundraising history, Standard & Poor’s believes the center’s credit profile is more in line with the BBB-minus rating at this time.”
The 2006 bonds were originally insured by MBIA Insurance Corp., which lost its triple-A ratings amid the collapse of the housing market. The 2008A bonds were backed by a letter of credit from Bank of America, whose Standard & Poor’s rating has fallen to A with a negative outlook. The 2008B bonds carried a letter of credit from JPMorgan Chase & Co., which provided an A-plus rating from Standard & Poor’s.
Moody’s Investors Service withdrew its ratings on the foundation in 2009. Fitch Ratings does not rate the debt.
Despite reports questioning the financial resources of the performing arts center, officials have pointed to positive indicators such as an improving balance sheet with a break-even budget for next fiscal year.
The city of Dallas provides $2.5 million in annual funding for the center. Fundraising for the annual fund is on track to reach $1.5 million this year, almost double last year’s total, officials said.