The Rating Outlook is Stable.
The series 2010 bonds are an unsecured general obligation of IHS, payable from all legally available funds. There is a cash-funded debt service reserve at maximum annual debt service (MADS).
KEY RATING DRIVERS
BALANCE SHEET STRENGTH PERSISTS: The 'A' rating remains supported by IHS' very strong balance sheet ratios and indirect support from the state of
REVENUE CONCENTRATION: Society operating revenues remain highly reliant on endowment earnings for both operations and debt service. There is limited flexibility from earned income and periodic gifts and grants. As such, the society's above average endowment draws are a concern.
HIGH DEBT BURDEN: IHS has a high debt burden of 20%, which while not inconsistent with that of other Fitch rated cultural institutions, limits expense flexibility. This is partially mitigated by unrestricted endowment that exceeds three times outstanding debt.
OPERATING DEFICITS: IHS has reported four consecutive years of operating deficits, through calendar 2013, which have been funded from unrestricted endowment. The society is working to moderate the deficits and the endowment draw over time. At this time Fitch views IHS's significant balance sheet ratio strength as a mitigating factor, allowing a cushion for the organization to manage expenses and return to sustainable long-term endowment draws over time.
CONTINUED OPERATING DEFICITS: Failure to moderate operating deficits, demonstrate steady progress in returning to a sustainable endowment draw, and realizing modest growth in endowment (on which the society relies heavily for operating income) could lead to a rating downgrade over time.
BALANCE SHEET STRENGTH: Significant declines in available funds ratios - which currently are strong relative to peer non-profit institutions - could trigger a negative rating action.
DEBT CAPACITY: Fitch considers IHS as having no new debt capacity at the existing rating level; there are no debt plans at this time.
Located in downtown
STRONG BALANCE SHEET
IHS' rating remains supported by strong balance sheet ratios and a comparatively large unrestricted endowment relative to operations and outstanding debt. Available funds, defined by Fitch as cash and investments not permanently restricted, was
This endowment was
Endowment growth is constrained due to the above average endowment draw rate. In part constraining the endowment was the society's contribution of
IHS' endowment draw is based on a rolling three-year average of market value and, including both operations and debt service, effectively ranged from 5.1% in fiscal 2010 to 6.5% in fiscal 2013. The budgeted effective draw rate for the fiscal year ending
Audited IHS operating performance has been negative since fiscal 2010, and Fitch expects similar results for the calendar 2014 budget year based on the society's cash-based operating budget. Fiscal 2013 operating results were negative
Management reports that operating deficits (and higher endowment draws to support them) have been caused by increased operating expenses from the Indiana Experience exhibit which opened in 2010, principal amortization of debt, and higher interest expense. Before the 2010 refunding, IHS had variable rate bonds with a very low interest rate and no principal amortization. Receipt or release of gifts can influence operating results. In recent years, IHS has contained expenses while still investing in fundraising activities.
IHS' operating profile remains dominated by endowment-related income. Fiscal 2013 operating revenues included the endowment draw (48%), net assets released from restriction (23%), and non-cash state of
The society's debt repayment plan is currently based on future fund raising and current use of unrestricted endowment, as needed. From an audit perspective, fiscal 2013 net income available for debt service (including the operating portion of the endowment draw), generated MADS debt service coverage of only 0.4x. The balance of annual debt service obligations are paid from unrestricted endowment. Fitch considers IHS's endowment (
At this time, due to the operating deficits and above average endowment draws, Fitch does not view IHS as having any additional debt capacity at the current rating.
Additional information is available at 'www.fitchratings.com'.
--'Revenue Supported Rating Criteria'(June, 2014);
--'Nonprofit Institutions Rating Criteria'(June, 2014);
--'Fitch Affirms Indiana Historical Society (IN) Revs at 'A'; Outlook Stable'(
Revenue-Supported Rating Criteria
U.S. Nonprofit Institutions Rating Criteria
Source: Fitch Ratings
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