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Fitch Affirms University & Community College System of Nevada Lease Revs at 'AA-'; Outlook StableFitch Ratings has affirmed the following Nevada System of Higher Education, formerly known as University and Community College System of Nevada (the university system) obligation: --$4.93 million taxable lease revenue bonds, series 2002, at 'AA-'. The Rating Outlook is Stable. The 'AA-' rating reflects the strength of the lease-rental agreement, credit quality of the counterparties, likelihood of continued payments by a strong lessee (the U.S. federal government), as well as the expectation that the university system (certificates of participation rated 'AA'/Stable Outlook) will continue to maintain the leased premises to the standards required under the lease. KEY RATING DRIVERS Low Complexity, Minimal Cost Risk The university system is required to maintain the building in good repair to avoid cancellation of the lease by the lessee. Through over 10 years of operations, there have been no instances of maintenance falling below the standards of the lease. The U.S. Government General Services Administration (GSA (News - Alert)) pays a share of the operating costs as a component of its annual rent. (Cost Risk - Stronger) Abatement Risk Well-Contained Lease payments are subject to abatement in the event of damage to the building preventing or limiting occupancy by the lessee. The maintenance of property and casualty insurance, rental interruption insurance, and a lease bond (to cover rent in the event it is not paid in full by the GSA) mitigate the risk of abatement. (Revenue Risk - Stronger) Legal Structure Provides Adequate Protections The fixed-rate bonds are secured by GSA lease rental payments sufficient to cover interest and mandatory sinking fund payments. The lease may only be cancelled under certain limited conditions, including failure by the university system to maintain the facility in good repair, and inability to reconstruct the facility within two years in case of damage. (Debt Structure - Stronger) RATING SENSITIVITIES Negative- The university system's failure to maintain the building in good repair could result in deductions in rental payments or outright cancellation of the lease, increasing the risk of payment disruption. Negative - Failure to renew or replace the letter of credit (LOC) facility for the lease bond in an amount sufficient to cover two years' worth of debt service would expose the bonds to increased risk of payment disruption due to abatement. SUMMARY OF CREDIT The university system continues to comply with requirements laid out in the lease and bond documents, including operation and maintenance of the leased premises and maintenance of the LOC supporting debt service. These measures have ensured timely and full lease payments by the federal government. Debt service payments have been made in full and on time. The bonds are secured by a stream of monthly lease rental payments, equal to debt service, which are made by the GSA. The pledged payments are a subset of a larger rental payment relating to the lease by the GSA, on behalf of the Department of Energy (DOE), for a portion of a building at the university system's Desert Research Institute. The obligation by the federal government to make lease payments required under the lease is a general obligation, with only limited opportunity to cancel or abate. The lease provides for cancellation only under limited and unlikely circumstances such as damage to the building that the university system cannot repair within two years. The GSA may also cancel the lease, if, in the event of damage, the university system does not provide a plan for reconstruction and execute a related contract within 90 days of the casualty event. Lease payments are subject to abatement, commensurate with the loss of use of the facility, in the event of fire or structural damage. To mitigate the risk of abatement, the university system maintains rental interruption insurance and the LOC-backed lease bond. Rental interruption insurance is equivalent to the forthcoming year of debt service payments and the lease bond is equal to two years of scheduled rent payments (debt service and GSA's share of operating costs). The LOC on the lease bond expires prior to debt maturity (July 2017) and failure to renew or replace it, would increase the risk of payment disruption. The rating also considers the general credit-worthiness of the university system, as the system is responsible for maintaining the leased facility in good repair, and creating and implementing replacement plans in case of damage to the property. The university system maintains property and casualty insurance equaling the lesser of bond principal outstanding or the building's replacement cost. Bondholders do not have a security interest in the leased premises, nor does ownership transfer to the lessee at the end of the lease. Fitch considers the leased facility to be important to, but not essential to the federal government as lessee. The DOE uses the building as a repository for Nevada Test Site documentation and records on radiation exposure and nuclear testing, a public information center, and a museum for artifacts and archeological materials found at the site. Federal law requires public access to these documents and collection and curation of the artifacts. The building was designed and constructed for this purpose. Additional information is available on www.fitchratings.com Applicable Criteria Rating Criteria for Availability-Based Projects (pub. 14 Oct 2015) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871036 Rating Criteria for Infrastructure and Project Finance (pub. 28 Sep 2015) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870967 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003437 Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003437 Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. View source version on businesswire.com: http://www.businesswire.com/news/home/20160427006789/en/ |
